-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WvVgdwaA7VTsj5s0iMS6+YNqIBw7/id9xtPtHfqEmjBLAwF+6HJXoNYjs1VlwzSy TI0DFcuuk7GiKO+JP/qsfQ== 0000912057-96-015557.txt : 19960729 0000912057-96-015557.hdr.sgml : 19960729 ACCESSION NUMBER: 0000912057-96-015557 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 37 CONFORMED PERIOD OF REPORT: 19960427 FILED AS OF DATE: 19960726 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: RYKOFF SEXTON INC CENTRAL INDEX KEY: 0000085973 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-GROCERIES & RELATED PRODUCTS [5140] IRS NUMBER: 952134693 STATE OF INCORPORATION: DE FISCAL YEAR END: 0430 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-08105 FILM NUMBER: 96599611 BUSINESS ADDRESS: STREET 1: 761 TERMINAL ST CITY: LOS ANGELES STATE: CA ZIP: 90021 BUSINESS PHONE: 2136224131 MAIL ADDRESS: STREET 1: 761 TERMINAL ST CITY: LA STATE: CA ZIP: 90021 FORMER COMPANY: FORMER CONFORMED NAME: RYKOFF S E & CO DATE OF NAME CHANGE: 19850124 10-K 1 FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES - --- EXCHANGE ACT OF 1934 (FEE REQUIRED) For the fiscal year ended April 27, 1996 OR - --- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) For the transition period from _____________ to _______________ Commission file number 0-8105 RYKOFF-SEXTON, INC. (Exact name of registrant as specified in its charter) Delaware 95-2134693 (State or other jurisdiction of (I.R.S. Employer incorporation of organization) Identification No.) 1050 Warrenville Road, Lisle, Illinois 60532 (Address of principal executive office) (Zip Code) Registrant's telephone number, including area code: (708) 964-1414 Securities registered pursuant to Section 12(b) of the Act: TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED Common Stock New York Stock Exchange Preferred Stock Purchase Rights New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. X - Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- The aggregate market value of the voting stock of the registrant held by non- affiliates of the registrant, based on the closing price at which such stock was sold on the New York Stock Exchange on July 19, 1996 was $270,099,000. At July 19, 1996, the registrant had 27,706,091 shares of common stock outstanding. Parts I and III incorporate information by reference from the registrant's definitive Proxy Statement to be filed in connection with the registrant's 1996 Annual Meeting of Shareholders. Parts I and II incorporate information by reference from the registrant's Annual Report to Shareholders for the fiscal year ended April 27, 1996. 1 PART I ITEM 1. BUSINESS GENERAL Established in 1911, Rykoff-Sexton, Inc., together with its subsidiaries (the "Company") is a leading broadline distributor of high quality foods and related non-food products for the foodservice industry throughout the United States. In fiscal 1996, the Company distributed its product line of approximately 41,000 items to restaurants, industrial cafeterias, healthcare facilities, hotels, schools and colleges, airlines, clubs, supermarket service delicatessen departments and other establishments where food is prepared or consumed away from home. It also offered design and engineering services for all types of foodservice operations through its contract/design group. The Company's products consist of a broad line of private label and national branded food and foodservice equipment and supplies. The Company's proprietary private label products accounted for approximately 51% of the Company's net sales in fiscal 1996. The Company develops and manufactures many of its private label products, and it also manufactures other products for certain customers under the customers' own brand labels. During fiscal 1996, the Company's principal operations were conducted through the Rykoff-Sexton Distribution Division (the "Distribution Division") and the Rykoff-Sexton Manufacturing Division (the "Manufacturing Division"). The Company's San Francisco International Cheese Imports operations were absorbed by the Distribution Division in fiscal 1996. On May 17, 1996, the Company consummated its acquisition (the "Merger") of US Foodservice Inc. a privately held, broadline foodservice distribution company. US Foodservice Inc. is now operating as a wholly-owned subsidiary of the Company. DISTRIBUTION DIVISION The Distribution Division conducted its operations during fiscal 1996 through 26 distribution branches and seven additional sales offices that are largely located in major metropolitan areas throughout the United States. The Distribution Division also offered design and engineering services for all types of foodservice operations through its ten contract/design offices. In fiscal 1996, sales of the Distribution Division (including products sold through this division by the Manufacturing Division) generated approximately 99% of the Company's net sales. The Distribution Division also distributed domestic and imported cheeses and specialty and gourmet products. The operations of the Distribution Division, which in fiscal 1996 were based in Lisle, Illinois, are being combined with those of US Foodservice Inc., headquartered in Wilkes-Barre, Pennsylvania. Once integrated, the new Distribution Division will initially be comprised of 43 distribution centers. In addition, a Special Services Division will provide restaurant design and engineering services for all types of foodservice operations through its contract/design offices, and offer equipment and supplies, as well as specialty and gourmet imported products. MANUFACTURING DIVISION At its three plants, the Manufacturing Division manufactures products primarily under the Company's proprietary private labels and also manufactures products for other manufacturers, distributors, restaurant chains and other large users under their own brand labels. Approximately 89% of the Manufacturing Division's products were sold through the Distribution Division in fiscal 1996, and the remainder were sold directly to customers. PRODUCTS In fiscal 1996, the Company offered to the foodservice industry a single source of supply for approximately 41,000 private label and national branded items that were distributed to approximately 100,000 foodservice establishments. For the fiscal year ended December 30, 1995, US Foodservice Inc. offered a broad and diverse line of products consisting of more than 20,000 items and served more than 40,000 customers. DISTRIBUTION DIVISION FOOD PRODUCTS The Company's food products include canned fruits and vegetables, tomatoes and tomato products, juices, relishes and pickle products, dry package foods, syrups, dressings and salad oils, baking supplies, extracts and colors, spices, condiments, seasonings and sauces, jellies and preserves, coffee, tea and fountain goods, prepared convenience entrees, meats, desserts and puddings, dietary foods, imported and domestic cheeses and specialty and gourmet items. 2 Frozen foods include soups, prepared convenience entrees, bakery products, fruits and vegetables, desserts, frozen meat, chicken and fish and other frozen products customarily distributed to the foodservice industry. JANITORIAL AND PAPER PRODUCTS The Company's non-food products include janitorial supplies such as detergents and cleaning compounds; plastic products such as refuse container liners, cutlery, straws and sandwich bags; and paper products such as napkins, cups, hats, placemats, coasters and lace doilies. EQUIPMENT AND SUPPLIES The Company also distributes smallware restaurant equipment and supply items, including cookware, glassware, dinnerware and other commercial kitchen equipment. SPECIAL SERVICES The Special Services Division has ten offices that provide design and engineering services, as well as equipment installations for restaurants and other foodservice establishments. MANUFACTURING DIVISION The Company's products include approximately 1,400 food and 600 non-food items that are manufactured, processed and packaged at its three plants located in Los Angeles, California; Indianapolis, Indiana and Englewood, New Jersey. These products are primarily manufactured under the Company's private labels. The Company also manufactures products for certain customers such as other manufacturers, distributors, restaurant chains and other large users under their own brand labels. The Manufacturing Division's food products include mayonnaise and salad dressings, oils, margarine and shortenings, gelatins and dessert powders, vinegars, sauces, pancake and waffle mixes, biscuit and flour mixes, soup bases, jams and jellies, canned and frozen soups, canned and frozen entrees, relishes and tea. Its non-food products include detergents, cleaning compounds, refuse container liners, cutlery, straws and sandwich bags, paper napkins, placemats, chefs' hats, coasters and a line of low temperature dishwashers. (THE REMAINDER OF THIS PAGE HAS BEEN LEFT BLANK.) 3 MARKETING AND DISTRIBUTION The Company markets its products and contract/design services to customers in the foodservice industry, including restaurants, industrial cafeterias, healthcare facilities, hotels, schools and colleges, airlines, clubs, supermarket service delicatessen departments and other establishments where food is prepared or consumed away from home. The following table sets forth the approximate customer base of the Company for the fiscal year ended April 27, 1996: Approximate Percentage Type of Customer of Net Sales ---------------- ------------ Restaurants (including in-plant commercial and industrial food centers, cafeterias and coffee shops, etc.)........................ 65.0% Hospitals, nursing homes, sanitariums and other healthcare facilities................ 10.6% Schools and universities (including fraternities and sororities)............... 7.5% Hotels and motels.......................... 7.1% Retail..................................... 4.0% Distributors............................... 1.3% Other...................................... 4.5% ---- 100.0% ------ ------ In the fiscal year ended December 30, 1995, the customers of US Foodservice Inc. fell into five primary categories: restaurants (56% of net sales), healthcare facilities (17%), schools and universities (11%), business and industrial facilities (8%), and hotels and motels (3%), with other customers comprising the remaining sales. No customer of the Company accounted for two percent or more of the Company's sales for the fiscal year ended April 27, 1996. For the fiscal year ended December 30, 1995, the largest customer of US Foodservice Inc. accounted for approximately 5% of net sales. No product distributed by the Company accounts for a material part of the Company's sales volume. In fiscal 1996 sales of the Company advanced 14.1% over the previous year. Excluding acquisitions, sales on a "same branch" basis advanced 4%. During fiscal 1996, growth of same branch sales was hampered by severe winter weather conditions throughout the East and Midwest regions. The Company believes that product quality, close contact with customers, prompt and accurate delivery of orders, and the ability to provide related services are of primary importance in the distribution of products to the foodservice industry. In fiscal 1996, sales offices were maintained at each of the Company's 26 distribution branches. The Company's sales force of approximately 1,200 employees in fiscal 1996 included foodservice specialists from the Distribution Division who were organized by region and who were each assigned to a distribution branch. The sales force also included account executives who handled multi-unit accounts such as restaurant chains and other large users. For the fiscal year ended December 30, 1995, US Foodservice Inc. employed over 600 salespersons for street accounts in either commissioned sales, supervisory or customer representative roles, and over 100 salespersons to service its chain accounts. In addition to soliciting orders, sales personnel are trained to advise customers on menu selection, methods of preparing and serving food, merchandising techniques, unit cost controls and other operating procedures. During fiscal 1996, products were distributed to customers nationwide through the Company's 26 distribution branches, as well as through independent distributors. With the exception of one equipment and supply branch, each branch stocked a broad line of between approximately 7,000 and 15,000 items for sale in its marketing area. Customer orders are usually processed and shipped within 24 hours of receipt and are delivered directly to the customer. The Company uses its warehouse facilities in Los Angeles, Indianapolis and Dorsey, Maryland to store and consolidate product orders from vendors for subsequent shipment to the distribution branches. For the fiscal year ended December 30, 1995, US Foodservice Inc. distributed its products from its 17 distribution centers located in the Southeastern, Southwestern and Mid-Atlantic regions of the United States. 4 The following table sets forth the Company's branches and contract/design offices:
DISTRIBUTION CENTERS Atlanta, Georgia*/** Greensboro, North Carolina Philadelphia, Pennsylvania Austin, Texas Honolulu, Hawaii Phoenix, Arizona Baltimore, Maryland** Hurricane, West Virginia** Pittsburgh, Pennsylvania Boston, Massachusetts Knoxville, Tennessee** Pittston, Pennsylvania** Charlotte, North Carolina** Las Vegas, Nevada** Portland, Oregon Chicago, Illinois** Los Angeles, California** Reno, Nevada** Cincinnati, Ohio** Lubbock, Texas** Riviera Beach, Florida** Columbus, Ohio Mesquite, Texas** St. Louis, Missouri** Dallas, Texas*/** Minneapolis/St.Paul, Minnesota Sacramento, California* Detroit, Michigan** New Orleans, Louisiana** Salem, Virginia** Englewood, New Jersey** Oklahoma City, Oklahoma** San Francisco, California Fort Myers, Florida** Orlando, Florida*/** Spokane, Washington** Fresno, California** Ormond Beach, Florida** CONTRACT AND DESIGN OFFICES Boston, Massachusetts Minneapolis/St. Paul, Minnesota Seattle, Washington Chicago, Illinois Portland, Oregon Spokane, Waashington Cincinnati, Ohio Sacramento, California Los Angeles, California San Francisco, California
* Atlanta and Orlando - The Company has two distribution centers in these cities. Sacramento - A general distribution branch and an equipment and supply branch are located in this city. Dallas - The Company has three distribution centers in this city. ** Indicates facility owned by the Company; all other facilities are leased, except in Orlando, where one facility is leased and the other facility is owned. (THE REMAINDER OF THIS PAGE HAS BEEN LEFT BLANK.) 5 SOURCES OF SUPPLY In fiscal 1996, the Company purchased from approximately 7,500 suppliers; no supplier represented more than two percent of the Company's purchases. For the fiscal year ended December 30, 1995, US Foodservice Inc. purchased goods from over 3,500 independent vendors. The Company selects suppliers, which include both large multi-line and smaller specialty processors and packagers, primarily on the basis of their ability to meet their quality standards. The Company has no significant long-term purchasing obligations and the Company believes that it has adequate alternative sources of supply for almost all of the purchased items and raw materials used in its manufacturing operations. QUALITY CONTROL AND REGULATION The Manufacturing Division maintains quality control laboratories in its Los Angeles, Indianapolis and Englewood facilities. These laboratories are staffed by chemists and food technologists who are trained to control product quality for both self-manufactured and purchased private label products and to provide research and development support for the Company's manufactured products. Quality control procedures include the sampling and testing of raw materials, purchased private label products and Company manufactured items for quality, taste and appearance and the microbiological testing of Company manufactured food items. EMPLOYEES As of April 27, 1996, the Company employed a total of approximately 5,400 people, of whom approximately 1,900 were covered by collective bargaining agreements. These agreements expire at various times over the next several years. US Foodservice Inc. had approximately 3,700 full-time employees for the fiscal year ended December 30, 1995, of which approximately 100 were covered by a collective bargaining agreement. The Company believes its labor relations are good. COMPETITION The Company operates on a nationwide basis and encounters significant competition from a number of sources in each of its marketing areas. The Company competes with two other large national distribution companies, Sysco Corporation and Alliant Foodservice, Inc., both of which have substantially greater financial and other resources than the Company. The Company also competes with numerous regional and local distributors that offer broad lines of products. The Company believes that the Merger will enable it to draw on the strengths of food distribution businesses of US Foodservice Inc. including its strong market share in each of the local and regional markets in which the Company has less of a presence. Additionally, the Company expects to benefit from the quality, experience and breadth of the senior management team of US Foodservice Inc. However, the foodservice distribution industry continues to be characterized by significant consolidation and the emergence of larger competitors, principally through acquisitions. There can be no assurances that the Company will not encounter increased competition in the future, which could adversely affect the Company's business. The Company believes that although price is a consideration, competition in the foodservice industry is generally on the basis of product quality, customer relations and service. As one of the leading national broadline distributors to the foodservice industry, the Company believes that it carries a wider selection of food products of superior quality and value and a greater variety of package sizes than many of its competitors. The Company attributes its ability to compete effectively in its markets to this wide food product selection and its broad line of related non-food products, which are offered through a dedicated, highly skilled and customer-oriented sales force. Further, the Company differentiates itself in part from its competitors by (i) providing many specialty products that have been developed specifically for the foodservice industry or for particular foodservice customers, (ii) maintaining an extensive selection of imported and specialty products, equipment and supplies and (iii) offering its design and engineering services for all types of foodservice operations. 6 ITEM 2. PROPERTIES The Company is in the process of relocating its corporate headquarters from Lisle, Illinois to Wilkes-Barre, Pennsylvania. The Company is relocating its Distribution Division headquarters in Wilkes- Barre from its current leased facilities, comprising some 12,500 square feet of office space, to approximately 25,000 square feet in a newly constructed three story building. The new office space, which is located in Plains Township, Pennsylvania, will be leased by the Company for a twelve-year term (commencing on the date the premises are delivered with certain improvements substantially completed). The Company's owned property in Los Angeles, California continues to house the Manufacturing Division headquarters, a large manufacturing plant and a warehouse that is used to store and consolidate product orders from vendors. The property consists of four buildings with approximately 1.4 million square feet of space on 20.2 acres. In addition to the manufacturing plant located on the Los Angeles property, the Company owns and operates manufacturing plants totaling 234,000 square feet in Indianapolis, Indiana and Englewood, New Jersey. The Company's Los Angeles distribution branch is housed in a 420,000 square foot facility in La Mirada, California. Expansion of the Company's business has dictated groundbreaking for new and expanded facilities in Reno, Las Vegas and a 420,000 square foot technologically advanced distribution facility to be constructed on a 96 acre site in York County, South Carolina, just south of Charlotte. Equipment and machinery owned by the Company and used in its operations consist principally of electronic data processing equipment, food and non-food processing and packaging equipment and chemical compounding, blending and product handling equipment. The Company owns a fleet of approximately 626 vehicles consisting of tractors, trailers, vans and bobtails, which are used for long hauls and local deliveries. In addition, the Company leases approximately 1,075 delivery vehicles under terms which expire at various dates through 2000. For the fiscal year ended December 30, 1995, the fleet of trucks of US Foodservice Inc. consisted of more than 900 vehicles. ITEM 3. LEGAL PROCEEDINGS Reference is made to discussions with respect to legal proceedings in which the Company is a party thereto, as set forth on Pages 24 and 25 of the Company's 1996 Annual Report to shareholders, and by such reference, such information is incorporated herein. US Foodservice Inc. is involved in various litigation matters incidental to the conduct of its business. The Company does not believe that the outcome of any of these legal proceedings will have a material adverse effect on the financial condition or results of operations of the Company. (THE REMAINDER OF THIS PAGE HAS BEEN LEFT BLANK.) 7 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. CORPORATE EXECUTIVE OFFICERS The following are the corporate executive officers of the Company as of July 25, 1996:
Officer's Name Position Age Since - ---- -------- --- ----- Mark Van Stekelenburg Chairman, Chief Executive Officer and Director 45 1991 Frank H. Bevevino President and Director 55 1996 Harold E. Feather Executive Vice President, Corporate Planning 57 1992 Alan V. Giuliani Executive Vice President and President, Rykoff-Sexton Manufacturing Division 50 1990 Robert J. Harter, Jr. Senior Vice President-Administration, General Counsel and Secretary 51 1989 Richard J. Martin Senior Vice President and Chief Financial Officer 50 1988 Thomas G. McMullen Executive Vice President and President and Chief Operating Officer,US Foodservice Distribution Division 55 1996
8 All of the executive officers serve in their capacities by approval of the Board of Directors. Each executive officer has, as his principal occupation, been employed by the Company in the capacities set forth or in similar capacities for more than the last five years, except as follows: Mr. Mark Van Stekelenburg was elected Executive Vice President in 1991, President and Chief Executive Officer in 1992 and Chairman and Chief Executive Officer in 1995; Mr. Richard J. Martin was elected Vice President in 1988 and Senior Vice President and Chief Financial Officer in 1993; Mr. Robert J. Harter, Jr. was elected Vice President and General Counsel in 1989, Senior Vice President, Human Resources and General Counsel in 1993, Senior Vice-President, Human Resources, General Counsel and Secretary in 1995, and Senior Vice-President-Administration, General Counsel and Secretary in 1996; Mr. Alan V. Giuliani was elected Vice President in 1990, President, Rykoff-Sexton Manufacturing Division in 1992 and Executive Vice President in 1995; Mr. Harold E. Feather was elected President, Rykoff- Sexton Distribution Division in 1992 and Executive Vice President, Corporate Planning in 1994; Mr. Frank H. Bevevino was elected President of the Company and Mr. Thomas G. McMullen was elected Executive Vice President and President and Chief Operating Officer, US Foodservice Distribution Division, in 1996. Mr. Van Stekelenburg joined the Company in March 1991 and was previously, since 1986, President and Chief Executive Officer of G.V.A. and Kok-Ede, the foodservice division of Royal Ahold, N.V., the largest food retailer in the Netherlands which also has substantial holdings in food retailing in the United States. Mr. Martin joined the Company in August 1988 and was previously a partner with the accounting firm of Arthur Andersen LLP.; he had been associated with that firm for twenty-one years. Mr. Harter joined the Company in October 1989 and was previously Senior Vice President, General Counsel and Secretary for Tiger International, Inc. He had been an officer of Tiger International, Inc. for eleven years. Mr. Giuliani joined the Company in August 1990. Previously, Mr. Giuliani was employed by Mars, Inc., a food manufacturer, where he held various senior management positions including Vice President-Research and Development/Engineering for the Dove International Division, and Vice President-New Business Development and Vice President-Plant Manager for the M&M/Mars Division. Mr. Harold E. Feather joined the Company in 1983 when the Company acquired John Sexton & Co. He has held various positions within the Company and was elected Executive Vice President, Corporate Planning in 1994; his most recent previous position was President, Rykoff-Sexton Distribution Division, which he held since 1992. Mr. Frank H. Bevevino and Mr. Thomas G. McMullen both joined the Company in 1996 upon consummation of the Merger. Mr. Bevevino had served as Chairman of the Board, President and Chief Executive Officer of US Foodservice Inc. since August 1988. Mr. McMullen had served as President, Chief Operating Officer and Director of US Foodservice Inc. since January 1992. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Reference is made to the information with respect to the principal markets on which the Company's common stock is being traded, prices for each quarterly period and dividend record for the last three years set forth on page 2 of the Company's 1996 Annual Report to shareholders, and by such reference, such information is incorporated herein. The Company estimates that there are approximately 5,500 shareholders including those holding through nominees, as of June 1996. ITEM 6. SELECTED FINANCIAL DATA Reference is made to the financial data with respect to the Company set forth on pages 8 and 9 of the Company's 1996 Annual Report to shareholders and by such reference, such financial data is incorporated herein. 9 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Reference is made to Management's Discussion and Analysis set forth on pages 10 to 12 of the Company's 1996 Annual Report to shareholders, and by such reference, such information is incorporated herein. Upon consummation of the merger, the Company changed its fiscal year to the Saturday closest to June 30 of each year. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Reference is made to the consolidated financial statements set forth on pages 13 through 27 of the Company's 1996 Annual Report to shareholders, and by such reference, such information is incorporated herein. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT ITEM 11. EXECUTIVE COMPENSATION ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information called for by PART III (Items 10, 11, 12 and 13) is incorporated by reference from the Company's definitive proxy statement to be filed in connection with its 1996 Annual Meeting of Stockholders pursuant to Regulation 14A. (THE REMAINDER OF THIS PAGE HAS BEEN LEFT BLANK.) 10 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) (1) The financial statements listed below are filed as part of this Annual Report on Form 10-K: Page Reference -------------- Form Annual 10-K Report ---- ------ Data is incorporated by reference from the attached Annual Report to shareholders of Rykoff-Sexton, Inc. for the fiscal year ended April 27, 1996. With the exception of the information specifically incorporated herein by reference, the 1996 Annual Report to shareholders is not to be deemed "filed" as part of this Annual Report on Form 10-K. Consolidated statements of operations for each of the three years in the period ended April 27, 1996 13 Consolidated balance sheets as of April 27, 1996 and April 29, 1995 14 Consolidated statements of cash flows for each of the three years in the period ended April 27, 1996 15 Consolidated statements of shareholders' equity for each of the three years in the period ended April 27, 1996 16 Notes to consolidated financial statements 17-27 Report of independent public accountants 28 Attachments incorporated herewith to Form 10-K: Report of independent public accountants on supplemental schedules to the consolidated financial statement 22 11 Page Reference -------------- Form Annual 10-K Report ---- ------ (2) Supplemental Schedules incorporated herewith to Form 10-K.: Schedule II - Valuation and qualifying accounts for each of the three years in the period ended April 27, 1996 23 (3) The following exhibits, as required by Item 601 of Regulation S-K, are filed as part of this report: 3.1 Restated Certificate of Incorporation of Rykoff-Sexton, Inc., as amended (incorporated by reference from Rykoff-Sexton, Inc.'s Report on Form 10-K for the fiscal year ended May 1, 1993, as amended) 3.2 Certificate of Correction (incorporated by reference from Rykoff-Sexton, Inc.'s Registration Statement on Form S-4, as filed with the Commission on April 2, 1996, Registration No. 333-02715) 3.3 Certificate of Designation of Rykoff-Sexton, Inc. 3.4 Amended and Restated By-Laws of Rykoff-Sexton, Inc. (incorporated by reference from Rykoff-Sexton, Inc.'s Registration Statement on Form S-4, as filed with the Commission on April 2, 1996, Registration No. 333-02715) 4.1 Specimen of Certificate representing Rykoff-Sexton, Inc. Common Stock, $.10 par value (incorporated by reference from Rykoff-Sexton, Inc.'s Registration Statement on Form S-4, as filed with the Commission on April 2, 1996, Registration No. 333-02715) 4.2 Indenture, dated as of November 1, 1993, between Rykoff-Sexton, Inc. and Norwest Bank Minnesota, N.A., as trustee (incorporated by reference from Rykoff-Sexton, Inc.'s Report on Form 10-Q for the quarter ended October 30, 1993) 4.3 Amended and Restated Rights Agreement, dated as of May 15, 1996, by Rykoff-Sexton, Inc. and Chemical Bank 4.4 Form of Common Stock Purchase Warrant expiring September 30, 2005 (incorporated by reference from Rykoff-Sexton, Inc.'s Registration Statement on Form S-4, as filed with the Commission on April 2, 1996, Registration No. 333-02715) 4.5 Credit Agreement dated as of May 17, 1996 among Rykoff-Sexton, Inc., Bank of America National Trust and Savings Association, as Administrative Agent, The Chase Manhattan Bank, N.A., as Documentation Agent, BA Securities, Inc., as Co-Arranger, Chase Securities, Inc., as Co-Arranger and the Other Financial Institutions Party Thereto (incorporated by reference from Rykoff-Sexton, Inc.'s Report on Form 8-K dated May 16, 1996) 12 10.1 1980 Stock Option Plan (incorporated by reference from Rykoff-Sexton, Inc.'s Report on Form 10-K for the fiscal year ended May 1, 1993, as amended)* 10.1.1 Form of Incentive Stock Option Agreement (incorporated by reference from Rykoff-Sexton, Inc.'s Registration Statement on Form S-4, as filed with the Commission on April 2, 1996, Registration No. 333-02715)* 10.2 1988 Stock Option and Compensation Plan, as amended on September 13, 1991 (incorporated by reference from Rykoff- Sexton, Inc.'s Report on Form 10-K for the fiscal year ended May 1, 1993, as amended)* 10.2.1 Form of Restricted Stock Agreement (incorporated by reference from Rykoff-Sexton, Inc.'s Report on Form 10-K for the fiscal year ended May 1, 1993, as amended)* 10.2.2 Form of Non-Qualified Stock Option Agreement (incorporated by reference from Rykoff-Sexton, Inc.'s Report on Form 10-K for the fiscal year ended May 1, 1993, as amended)* 10.2.3 Form of Converging Non-Qualified Stock Option Agreement (incorporated by reference from Rykoff-Sexton, Inc.'s Report on Form 10-K for the fiscal year ended May 1, 1993, as amended)* 10.2.4 Form of Performance Share Plan Agreement (incorporated by reference from Rykoff-Sexton, Inc.'s Registration Statement on Form S-4, as filed with the Commission on April 2, 1996, Registration No. 333-02715)* 10.2.5 Form of Performance Share Award Agreement* 10.3 Rykoff-Sexton, Inc. 1989 Director Stock Option Plan (incorporated by reference from Rykoff-Sexton, Inc.'s Report on Form 10-K for the fiscal year ended April 28, 1990, Commission File No. 0-7380)* 10.3.1 Form of Non-Qualified Stock Option Agreement (incorporated by reference from Rykoff-Sexton, Inc.'s Registration Statement on Form S-4, as filed with the Commission on April 2, 1996, Registration No. 333-02715)* 10.4 Rykoff-Sexton, Inc. 1993 Director Stock Option Plan (incorporated by reference from Rykoff-Sexton, Inc.'s Report on Form 10-Q for the quarter ended October 30, 1993)* 10.4.1 First Amendment to the Rykoff-Sexton, Inc. 1993 Director Stock Option Plan (incorporated by reference from Rykoff-Sexton, Inc.'s Registration Statement on Form S-4, as filed with the Commission on April 2, 1996, Registration No. 333-02715)* 10.4.2 Form of Non-Qualified Stock Option Agreement (incorporated by reference from Rykoff-Sexton, Inc.'s Registration Statement on Form S-4, as filed with the Commission on April 2, 1996, Registration No. 333-02715)* 10.5 1995 Key Employees Stock Option and Compensation Plan (incorporated by reference from Rykoff-Sexton, Inc.'s Registration Statement on Form S-4, as filed with the Commission on April 2, 1996, Registration No. 333-02715)* 13 10.6 Rykoff-Sexton, Inc. Convertible Award Plan (Officer and Key Employee Edition ) (incorporated by reference from Rykoff- Sexton, Inc.'s Registration Statement on Form S-4, as filed with the Commission on April 2, 1996, Registration No. 333- 02715)* 10.7 Rykoff-Sexton, Inc. Convertible Award Plan (Director Edition) (incorporated by reference from Rykoff-Sexton, Inc.'s Registration Statement on Form S-4, as filed with the Commission on April 2, 1996, Registration No. 333-02715)* 10.8 Amended and Restated Management Stock Option Plan of WS Holdings Corporation (incorporated by reference from Rykoff- Sexton, Inc.'s Registration Statement on Form S-8 dated May 17, 1996, as amended)* 10.8.1 Forms of Normal Option Agreement (Management Stock Option Plan)* 10.8.2 Forms of Performance Option Agreement* 10.9 Amended and Restated US Foodservice Inc. 1992 Stock Option Plan (incorporated by reference from Rykoff-Sexton, Inc.'s Registration Statement on Form S-8 dated May 17, 1996, as amended)* 10.9.1 Forms of Normal Option Agreement (US Foodservice 1992 Stock Option Plan)* 10.9.2 Forms of Performance Option Agreement (US Foodservice Inc. 1992 Stock Option Plan)* 10.10 Amended and Restated US Foodservice Inc. 1993 Stock Option Plan (incorporated by reference from Rykoff-Sexton, Inc.'s Registration Statement on Form S-8 dated May 17, 1996, as amended)* 10.10.1 Forms of Normal Option Agreement (US Foodservice Inc. 1993 Stock Option Plan)* 10.11 Amended and Restated Employment Agreement dated as of February 2, 1996 between Mark Van Stekelenburg and Rykoff-Sexton, Inc. (incorporated by reference from Rykoff-Sexton, Inc.'s Registration Statement on Form S-4, as filed with the Commission on April 2, 1996, Registration No. 333-02715)* 10.12 Letter Agreement between Harold E. Feather and Rykoff-Sexton, Inc. dated as of June 20, 1994 (incorporated by reference from Rykoff-Sexton, Inc.'s Report on Form 10-K for the fiscal year ended April 30, 1994)* 10.13 Letter Agreement dated July 18, 1994 between Harold E. Feather and Rykoff-Sexton, Inc. (incorporated by reference from Rykoff-Sexton, Inc.'s Registration Statement on Form S-4, as filed with the Commission on April 2, 1996, Registration No. 333-02715)* 10.14 Employment Agreement dated May 17, 1996, between Frank H. Bevevino and Rykoff-Sexton, Inc.* 10.15 Employment Agreement dated May 17, 1996, between Thomas G. McMullen and Rykoff-Sexton, Inc.* 10.16 Employment Agreement dated May 17, 1996, between David F. McAnally and Rykoff-Sexton, Inc.* 14 10.17 Second Amended and Restated Change in Control Agreement dated as of February 2, 1996 by Mark Van Stekelenburg and Rykoff-Sexton, Inc. (incorporated by reference from Rykoff-Sexton, Inc.'s Registration Statement on Form S-4, as filed with the Commission on April 2, 1996, Registration No. 333-02715)* 10.18 Form of Amended and Restated Change in Control Agreement, dated as of February 2, 1996 for Harold E. Feather, Alan V. Guiliani, Robert J. Harter, Jr. and Richard J. Martin (incorporated by reference from Rykoff-Sexton, Inc.'s Registration Statement on Form S-4, as filed with the Commission on April 2, 1996, Registration No. 333-02715) 10.19 Form of Change in Control Agreements for Victor B. Chavez and Thomas R. Rykoff (incorporated by reference from Rykoff- Sexton, Inc.'s Report on Form 10-K for the fiscal year ended April 28, 1990, Commission File No. 0-7380) 10.20 Change in Control Agreement, dated December 11, 1989, by Rykoff-Sexton, Inc. and Chris G. Adams (incorporated by reference from Rykoff-Sexton, Inc.'s Report on Form 10-K for he fiscal year ended April 28, 1990, Commission File No. 0-7380) 10.21 Change in Control Agreement, dated June 22, 1992, by Rykoff-Sexton, Inc. and Andre Mills (incorporated by reference from Rykoff-Sexton, Inc.'s Registration Statement on Form S-4, as filed with the Commission on April 2, 1996, Registration No. 333-02715) 10.22 Form of Indemnity Agreement (incorporated by reference from Rykoff-Sexton, Inc.'s Report on Form 10-K for the fiscal year ended May 1, 1993, as amended) 10.23 Rykoff-Sexton, Inc. Supplemental Executive Retirement Plan for Mark Van Stekelenburg as of July 20, 1994, as amended June 19, 1995 (incorporated by reference from Rykoff-Sexton, Inc.'s Registration Statement on Form S-4, as filed with the Commission on April 2, 1996, Registration No. 333-02715)* 10.24 Form of Amended and Restated Supplemental Executive Retirement Plans for Robert J. Harter, Jr., Harold E. Feather, Richard J. Martin and Alan V. Guiliani (incorporated by reference from Rykoff-Sexton, Inc.'s Registration Statement on Form S-4, as filed with the Commission on April 2, 1996, Registration No. 333-02715)* 10.25 Form of Severance Agreement dated as of February 2, 1996 for Harold E. Feather, Alan V. Guiliani, Robert J. Harter, Jr. and Richard J. Martin (incorporated by reference from Rykoff-Sexton, Inc.'s Registration Statement on Form S-4, as filed with the Commission on April 2, 1996, Registration No. 333-02715) 10.26 Deferred Compensation Plan Master Plan Document (incorporated by reference from Rykoff-Sexton, Inc.'s Registration Statement on Form S-4, as filed with the Commission on April 2, 1996, Registration No. 333-02715)* 10.26.1 Amendment to Rykoff-Sexton, Inc. Deferred Compensation Plan (incorporated by reference from Rykoff-Sexton, Inc.'s Registration Statement on Form S-4, as filed with the Commission on April 2, 1996, Registration No. 333-02715)* 15 10.27 Rykoff-Sexton, Inc. Master Trust Document for Executive Deferral Plans (incorporated by reference from Rykoff-Sexton, Inc.'s Registration Statement on Form S-4, as filed with the Commission on April 2, 1996, Registration No. 333-02715)* 10.27.1 Amendment to Rykoff-Sexton, Inc. Master Trust Document (incorporated by reference from Rykoff-Sexton, Inc.'s Registration Statement on Form S-4, as filed with the Commission on April 2, 1996, Registration No. 333-02715)* 10.28 Junior Demand Promissory Note dated March 31, 1995 by Mark Van Stekelenburg and Mirjam Van Stekelenburg (incorporated by reference from Rykoff-Sexton, Inc.'s Report on Form 10-K for the fiscal year ended April 29, 1995) 10.29 Form of Fiduciary Indemnity Agreement (incorporated by reference from Rykoff-Sexton, Inc.'s Report on Form 10-K for the fiscal year ended May 1, 1993, as amended) 10.30 Participation Agreement, entered into among Rykoff-Sexton, Inc. as Lessee ("Lessee"), Tone Brothers, Inc., as Sublessee ("Sublessee"), BA Leasing & Capital Corporation, as Agent ("Agent"), and BA Leasing & Capital Corporation, Manufacturers Bank and Pitney Bowes Credit Corporation, as Lessors (the "Lessors"), dated as of April 29, 1994 (incorporated by reference from Rykoff-Sexton, Inc.'s Report on Form 10-K for the fiscal year ended April 30, 1994) 10.30.1 Lease Intended as Security, among Lessee, Agent and the Lessors, dated as of April 29, 1994 (incorporated by reference from Rykoff-Sexton, Inc.'s Report on Form 10-K for the fiscal year ended April 30, 1994) 10.30.2 Sublease, between Lessee and Sublessee, dated as of April 29, 1994 (incorporated by reference from Rykoff-Sexton, Inc.'s Report on Form 10-K for the fiscal year ended April 30, 1994) 10.30.3 Lease supplement, among Lessee and Lessors, dated as of April 29, 1994 (incorporated by reference from Rykoff-Sexton, Inc.'s Report on Form 10-K for the fiscal year ended April 29, 1995) 10.30.4 Lease supplement, among Lessee and the Lessors, dated as of January 27, 1995 (incorporated by reference from Rykoff-Sexton, Inc.'s Report on Form 10-K for the fiscal year ended April 29, 1995) 10.30.5 Lease supplement, among Lessee and the Lessors, dated as of April 18, 1995 (incorporated by reference from Rykoff-Sexton, Inc.'s Report on Form 10-K for the fiscal year ended April 29, 1995) 10.30.6 Waiver, Consent and Fourth Amendment to Participation Agreement and Lease Amendment dated as of May 17, 1996 among Lessee, Agent and Lessors 10.31 Stock Purchase Agreement dated September 8, 1994 by Rykoff-Sexton, Inc., Tone Brothers and Burns Philp Food Inc. (incorporated by reference from Rykoff-Sexton, Inc.'s Report on Form 8-K dated October 27, 1994) 16 10.32 USFAR Master Trust Amended and Restated Pooling and Servicing Agreement, dated October 27, 1994 among USFAR Inc., US Foodservice Inc., the servicers named therein and Chemical Bank, as Trustee on behalf of the Certificateholders (the "Pooling and Servicing Agreement") (incorporated by reference from Rykoff-Sexton, Inc.'s Registration Statement on Form S-4, as filed with the Commission on April 2, 1996, Registration No. 333-02715) 10.32.1 Series 1994-1 Supplement to the Pooling and Servicing Agreement, dated October 27, 1994 (the "Series 1994-1 Supplement") (incorporated by reference from Rykoff-Sexton, Inc.'s Registration Statement on Form S-4, as filed with the Commission on April 2, 1996, Registration No. 333-02715) 10.32.2 Amended and Restated Receivables Purchase Agreement, dated as of October 27, 1994, among US Foodservice Inc., the subsidiaries of US Foodservice Inc. named therein, and USFAR Inc. (the "Receivables Purchase Agreement") (incorporated by reference from Rykoff-Sexton, Inc.'s Registration Statement on Form S-4, as filed with the Commission on April 2, 1996, Registration No. 333-02715) 10.32.3 Modification No. 1 as of June 23, 1995 to the Pooling and Servicing Agreement, Series 1994-1 Supplement and Receivables Purchase Agreement (incorporated by reference from Rykoff-Sexton, Inc.'s Registration Statement on Form S-4, as filed with the Commission on April 2, 1996, Registration No. 333-02715) 10.32.4 Modification No. 2 dated as of June 26, 1995 to the Pooling and Servicing Agreement, Series 1994-1 Supplement and the Receivables Purchase Agreement (incorporated by reference from Rykoff-Sexton, Inc.'s Registration Statement on Form S-4, as filed with the Commission on April 2, 1996, Registration No. 333-02715) 10.33 Commitment Agreement dated as of August 10, 1992 between BRB Holdings, Inc. and its subsidiaries and Sara Lee Corporation (incorporated by reference from Rykoff-Sexton, Inc.'s Registration Statement on Form S-4, as filed with the Commission on April 2, 1996, Registration No. 333-02715) 10.33.1 Amendment Number One to BRB Holdings Commitment Agreement dated as of September 27, 1995 by Sara Lee Corporation and BRB Holdings, Inc. and guaranteed by US Foodservice Inc. (incorporated by reference from Rykoff-Sexton, Inc.'s Registration Statement on Form S-4, as filed with the Commission on April 2, 1996, Registration No. 333-02715) 10.34 Commitment Agreement dated as of August 10, 1992 between WS Holdings Corporation and its Subsidiaries and Sara Lee Corporation (incorporated by reference from Rykoff-Sexton, Inc.'s Registration Statement on Form S-4, as filed with the Commission on April 2, 1996, Registration No. 333-02715) 10.34.1 Amendment Number One to WS Holdings Commitment Agreement dated as of September 27, 1995 by Sara Lee Corporation and WS Holdings Corporation and guaranteed by US Foodservice Inc. (incorporated by reference from Rykoff-Sexton, Inc.'s Registration Statement on Form S-4, as filed with the Commission on April 2, 1996, Registration No. 333-02715) 17 10.35 Agreement of Lease, dated February 28, 1996, by Paul-Francis Realty, L.P. and US Foodservice Inc. (incorporated by reference from Rykoff-Sexton, Inc.'s Registration Statement on Form S-4, as filed with the Commission on April 2, 1996, Registration No. 333-02715) 10.36 Agreement and Plan of Merger dated February 2, 1996 among Rykoff-Sexton, Inc., USF Acquisition Corporation and US Foodservice Inc. (incorporated by reference from Rykoff-Sexton, Inc.'s Registration Statement on Form S-4, as filed with the Commission on April 2, 1996, Registration No. 333-02715) 10.37 Agreement dated as of February 2, 1996 by and among Rykoff-Sexton, Inc. and the persons set forth on the signature pages thereto (incorporated by reference from Rykoff-Sexton, Inc.'s Registration Statement on Form S-4, as filed with the Commission on April 2, 1996, Registration No. 333-02715) 10.37.1 Amendment No. 1 to Agreement dated as of April 8, 1996 by and among Rykoff-Sexton, Inc. and the other persons set forth on the signature pages thereto 10.38 Registration Rights Agreement dated May 17, 1996 by Rykoff-Sexton, Inc. and the other signatories listed on the signature pages thereto 10.39 Standstill Agreement dated May 17, 1996 by Rykoff-Sexton, Inc. and the persons set forth on the signature pages thereto 10.40 Tax Agreement dated May 17, 1996 by Rykoff-Sexton, Inc. and the persons listed on the signature pages thereto 10.40.1 Addendum to Tax Agreement dated July 12, 1996, among Rykoff-Sexton, Inc., Frank H. Bevevino and Bevevino Unitrust Partners Limited Partnership 10.41 Pooling Agreement dated as of May 16, 1996 among Rykoff-Sexton Funding Corporation, as Company, Rykoff-Sexton, Inc., as Servicer and Chemical Bank, as Trustee 10.41.1 Series 1996-1 Supplement to Pooling Agreement dated as of May 16, 1996 among Rykoff-Sexton Funding Corporation, as Company, Rykoff-Sexton, Inc., as Servicer, Bank of America National Trust & Savings Association, as Administrative Agent, The Chase Manhattan Bank, N.A., as Co-Agent, the Chase Manhattan Bank, N.A. and Bank of America Illinois, as Initial Purchasers, and Chemical Bank, as Tustee 10.41.2 Servicing Agreement dated as of May 16, 1996 among Rykoff-Sexton Funding Corporation, as Company, Rykoff-Sexton, Inc., as Servicer, Its Wholly-Owned Subsidiaries Named Therein, as Sub-Servicers, and Chemical Bank, as Trustee 10.41.3 Receivables Sale Agreement dated as of May 16, 1996 among Rykoff-Sexton, Inc., John Sexton & Co., Rykoff-Sexton Funding Corporation and Rykoff-Sexton, Inc., as Servicer 13 1996 Annual Report to Shareholders 21 Subsidiaries of Rykoff-Sexton, Inc. 23 Consent of Arthur Andersen LLP 18 24.1 Power of Attorney of James I. Maslon 24.2 Power of Attorney of James P. Miscoll 24.3 Power of Attorney of Neil I. Sell 24.4 Power of Attorney of Bernard Sweet 24.5 Power of Attorney of Jan W. Jeurgens 24.6 Power of Attorney of R. Burt Gookin 24.7 Power of Attorney of Frank H. Bevevino 24.8 Power of Attorney of Matthias B. Bowman 24.9 Power of Attorney of Albert J. Fitzgibbons, III 24.10 Power of Attorney of Sunil C. Khanna 24.11 Power of Attorney of Robert W. Williamson 27 Financial Data Schedule * Management contract or compensatory plan All other schedules have been omitted since the required information is not present or not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements or the notes thereto. (b) Reports on Form 8-K During the fourth quarter of fiscal year 1996, the Company filed a Form 8-K dated February 5, 1996 reporting the following items: Item 5. Other Events. (THE REMAINDER OF THIS PAGE HAS BEEN LEFT BLANK) 19 SIGNATURES Pursuant to the requirements of the Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: July 25, 1996 RYKOFF-SEXTON, INC. /S/MARK VAN STEKELENBURG ------------------------------ Mark Van Stekelenburg Chairman and Chief Executive Officer /S/RICHARD J. MARTIN ------------------------------ Richard J. Martin Senior Vice President and Chief Financial Officer /S/JAMES C. WONG ------------------------------ James C. Wong Treasurer 20 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following directors on behalf of the Registrant on the date indicated. Frank H. Bevevino Matthias B. Bowman R. Burt Gookin Albert J. Fitzgibbons, III Jan W. Jeurgens Sunil C. Khanna James I. Maslon James P. Miscoll /S/MARK VAN STEKELENBURG Neil I. Sell -------------------------------- Mark Van Stekelenburg, signing Bernard Sweet personally as a director and as attorney in fact for the directors Robert W. Williamson whose names appear opposite. July 25, 1996 Powers of attorney authorizing Mark Van Stekelenburg, Richard J. Martin and James C. Wong, and each of them, to sign this Annual Report on Form 10-K on behalf of the above named directors of Rykoff-Sexton, Inc. have been filed as an exhibit to this report. 21 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Shareholders of Rykoff-Sexton, Inc. We have audited, in accordance with generally accepted auditing standards, the consolidated financial statements included in Rykoff-Sexton, Inc.'s Form 10-K and have issued our report thereon dated June 7, 1996. Our audits were made for the purpose of forming an opinion on those statements taken as a whole. The schedules listed in Item 14. (a)(2) are the responsibility of the Company's management and are presented for purposes of complying with the Securities and Exchange Commission's rules and are not part of the basic consolidated financial statements. These schedules have been subjected to the auditing procedures applied in the audits of the basic consolidated financial statements and, in our opinion, fairly state in all material respects the financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole. /S/ARTHUR ANDERSEN LLP Chicago, Illinois June 7, 1996 22 RYKOFF- SEXTON, INC. SCHEDULE II - - VALUATION AND QUALIFYING ACCOUNTS FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED APRIL 27, 1996 1996 1995 1994 ------------- ------------ ------------ RESERVE FOR DOUBTFUL ACCOUNTS: (1) - ------------------------------ Balance, beginning of year $3,996,000 $3,701,000 $4,353,000 Add (deduct) - Additions charged to income 3,552,000 1,310,000 2,524,000 Reserve balance of acquired company 108,000 479,000 --- Accounts written off (2,255,000) (1,494,000) (3,176,000) ------------- -------------- ------------- Balance, end of year $5,401,000 $3,996,000 $3,701,000 ------------- -------------- ------------- ------------- -------------- ------------- RESTRUCTURING RESERVE: - ---------------------- Balance, beginning of year $9,777,000 $14,936,000 $28,715,000 Add (deduct)- Utilization (3,336,000) (5,159,000) (13,779,000) Reversal (2) (6,441,000) --- --- ------------- -------------- ------------- Balance, end of year $--- $9,777,000 $14,936,000 ------------- -------------- ------------- ------------- -------------- ------------- ACCRUED INSURANCE EXPENSES AND OTHER: - ------------------------------------- Balance, beginning of year $17,592,000 $17,455,000 $14,220,000 Add (deduct)- Additions charged to income 18,659,000 20,812,000 21,975,000 Employee contributions 5,662,000 5,482,000 4,222,000 Payments (30,283,000) (26,157,000) (22,962,000) ------------- -------------- ------------- Balance, end of year $11,630,000 $17,592,000 $17,455,000 ------------- -------------- ------------- ------------- -------------- ------------- (1) Balances restated to reflect sale of discontinued Tone Brothers, Inc. subsidiary in October 1994. (2) Following finalization of restructuring plan in October 1995, this remaining unutilized restructuring reserve was credited into income. 23 EX-3.3 2 EXHIBIT 3.3 Exhibit 3.3 RYKOFF-SEXTON, INC. CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS, OF SERIES A JUNIOR PARTICIPATING PREFERRED STOCK Pursuant to Section 151 of the Delaware General Corporation Law We, Mark Van Stekelenburg, President, Chairman of the Board and Chief Executive Officer, and Robert J. Harter, Jr., Senior Vice President - Human Resources, General Counsel and Secretary, of Rykoff-Sexton, Inc., a corporation organized and existing under the Delaware General Corporation Law, in accordance with the provisions of Section 103 thereof, DO HEREBY CERTIFY: That pursuant to the authority conferred upon the Board of Directors of the Corporation by the Amended and Restated Certificate of Incorporation, as amended, of the Corporation, and in accordance with the provisions of Section 151 of the Delaware General Corporation Law, the Board of Directors of the Corporation on May 15, 1996, adopted the following resolution authorizing an increase in the authorized number of shares of Series A Junior Participating Preferred Stock from fifty thousand to one hundred twenty-five thousand shares: NOW, THEREFORE, BE IT RESOLVED, that paragraph 1 of Section C of Article FOURTH, of the Company's Amended and Restated Certificate of Incorporation is hereby amended in its entirety to read as follows: 1. DESIGNATION AND AMOUNT The shares of such series shall be designated as "Series A Junior Participating Preferred Stock" and the number of shares constituting such series shall be one hundred twenty- five thousand (125,000). IN WITNESS WHEREOF, Rykoff-Sexton, Inc. has caused this Certificate to be duly executed in its corporate name on this 15th day of May, 1996. RYKOFF-SEXTON, INC. By:/s/ Mark Van Stekelenburg ------------------------- Mark Van Stekelenburg President, Chairman of the Board and Chief Executive Officer Attest: /s/ Robert J. Harter, Jr. - ------------------------- Robert J. Harter, Jr. Senior Vice President - Human Resources, General Counsel, Secretary 2 EX-4.3 3 EXHIBIT 4.3 - ------------------------------------------------------------------------------- RYKOFF-SEXTON, INC. AND CHEMICAL BANK RIGHTS AGENT AMENDED AND RESTATED RIGHTS AGREEMENT DATED AS OF MAY 15, 1996 - ------------------------------------------------------------------------------- AMENDED AND RESTATED RIGHTS AGREEMENT This Agreement, dated as of May 15, 1996, between Rykoff-Sexton, Inc., a Delaware corporation (the "Company" ), and Chemical Bank, a New York banking corporation (the "Rights Agent"). WITNESSETH WHEREAS, the Board of Directors of the Company has authorized and declared a dividend distribution (the "Distribution") of one Right for each outstanding share of Common Stock, $.10 par value, of the Company outstanding on December 18, 1986, (the "Record Date") and has authorized the issuance of one Right (or such other number of Rights as may be required from time to time by the terms hereof) in respect of each share of Common Stock of the Company issued (whether from treasury or as an original issuance) between the Record Date and the Distribution Date (as such term is defined in Section 3 hereof), each Right representing the right to purchase one two-hundredth of a share of Series A Junior Participating Preferred Stock of the Company having the rights, powers and preferences set forth in the form of Certificate of Designation, Preferences and Rights attached hereto as Exhibit A, upon the terms and subject to the conditions hereinafter set forth (the "Rights"); WHEREAS, the Company and the Rights Agent, as successor to Chemical Trust Company of California, which was successor to Bank of America National Trust & Savings Association, as original Rights Agent, have entered into a Rights Agreement, dated as of December 8, 1986, as amended by each of the Amendment to Rights Agreement dated as of October 5, 1989, the Second Amendment to Rights Agreement dated as of December 4, 1995 and the Third Amendment to Rights Agreement dated as of January 31, 1996 (as amended, the "Agreement"); WHEREAS, the Company now wishes to amend and restate the Agreement in its entirety to reflect each of the prior amendments and the appointment of the Rights Agent and to further amend the Agreement to provide for an extension of the term of the Agreement from December 18, 1996 to May 15, 2006; and WHEREAS, Section 26 of the Agreement provides, among other things, that prior to the Distribution Date (as such term is defined in the Agreement) the Company and the Rights Agent shall, if the Company deems necessary or desirable to effectuate the purpose of the Agreement and if the Company so directs, change or supplement any provision of the Agreement without the approval of any holders of Rights Certificates. NOW, THEREFORE, in consideration of the premises and the mutual agreements herein set forth, the parties hereby amend and restate the Agreement and agree as follows: Section 1. CERTAIN DEFINITIONS. For purposes of this Agreement, the following terms have the meanings indicated: (a) "Acquiring Person" shall mean any Person (as such term is hereinafter defined) who or which, together with all Affiliates (as such term is hereinafter defined) and Associates (as such term is hereinafter defined) of such Person, shall be the Beneficial Owner (as such term is hereinafter defined) of 15% or more of the shares of Common Stock then outstanding, but shall not include (i) the Company, (ii) any Subsidiary of the Company, (iii) any employee benefit plan of the Company or of any Subsidiary of the Company, or any entity organized, appointed or established by the Company for or pursuant to the terms of any such plan, or (iv) Merrill Lynch Capital Partners, Inc., Merrill Lynch Capital Appreciation Partnership No. B-XVIII, L.P., Merrill Lynch Kecalp L.P. 1994, ML Offshore LBO Partnership No. B-XVIII, ML IBK Positions, Inc., MLCP Associates L.P. No. II, MLCP Associates L.P. No. IV, -2- Merrill Lynch Kecalp L.P. 1991, Merrill Lynch Capital Appreciation Partnership No. XIII, L.P., ML Offshore LBO Partnership No. XIII, ML Employees LBO Partnership No. I, L.P., Merrill Lynch Kecalp L.P. 1987, and Merchant Banking L.P. No. II (each, an "ML Entity" and collectively the "ML Entities"), if the ML Entities shall have executed a written agreement with the Company (and approved by the Company's Board of Directors) on or prior to the date on which the ML Entities (together with its Affiliates) became the Beneficial Owner of 15% or more of the shares of Common Stock then outstanding, which agreement imposes one or more limitations on the amount of the ML Entities' Beneficial Ownership of shares of Common Stock, and if, and so long as, such written agreement (or any amendment thereto approved by at least a majority of the members of the Board of Directors who are not Affiliates or Associates of an ML Entity, or representatives or nominees of an ML Entity or any such Affiliates or Associates ("ML Directors") continues to be in effect and binding on the ML Entities and the ML Entities are in compliance (as determined by the Company's Board of Directors in its discretion by at least a majority of the members of the Board of Directors who are not ML Directors) with the terms of such written agreement (including any such amendment); PROVIDED, HOWEVER, that no amendment of any such agreement shall cure any prior breach of such agreement or any amendment thereto. (b) "Acquisition Event" shall mean any event described in Section 11 (a) (ii) (A), (B) or (C) or Section 13 (a) hereof. (c) "Affiliate" and "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended, (the "Exchange Act") as in effect on the date of this Agreement. (d) A Person shall be deemed the "Beneficial Owner" of and shall be deemed to "beneficially own" any securities: -3- (i) which such Person or any of such Person's Affiliates or Associates beneficially owns, directly or indirectly; (ii) which such Person or any of such Person's Affiliates or Associates has (A) the right to acquire (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding (whether or not in writing), or upon the exercise of conversion rights, exchange rights, rights (other than these Rights at any time prior to the occurrence of an Acquisition Event, but thereafter including the Rights acquired from and after the Distribution Date (as defined in Section 3(a) below) other than pursuant to Section 3(a) below), warrants or options, or otherwise, PROVIDED, HOWEVER, that a Person shall not be deemed the "Beneficial Owner" of, or to "beneficially own," securities tendered pursuant to a tender or exchange offer made by such Person or any of such Person's Affiliates or Associates until such tendered securities are accepted for purchase or exchange; or (B) the right to vote pursuant to any agreement, arrangement or understanding; PROVIDED, HOWEVER, that a Person shall not be deemed the Beneficial Owner of, or to "beneficially own," any security under this clause (B) if the agreement, arrangement or understanding to vote such security (1) arises solely from a revocable proxy give in response to a public proxy or consent solicitation made pursuant to, and in accordance with, the applicable rules and regulations of the Exchange Act and (2) is not also then reportable by any such Person on Schedule 13D under the Exchange Act (or any comparable or successor report); or (iii) which are beneficially owned, directly or indirectly, by any other Person (or any Affiliate or Associate thereof) with which such Person or any of such Person's Affiliates or Associates has any agreement, arrangement or understanding -4- (whether or not in writing) for the purpose of acquiring, holding, voting (except pursuant to a revocable proxy as described in clause (B) of subparagraph (ii) of this paragraph (d)) or disposing of any voting securities of the Company. (e) "Business Day" shall mean any day other than a Saturday, Sunday, or a day on which banking institutions in the States of New York or Illinois are authorized or obligated by law or executive order to close. (f) "Close of business" on any given date shall mean 5:00 P.M., Chicago time, on such date; PROVIDED, HOWEVER, that if such date is not a Business Day it shall mean 5:00 P.M., Chicago time, on the next Succeeding Business Day. (g) "Common Stock" when used with reference to the Company shall mean the Common Stock, $.10 par value, of the Company. "Common Stock" when used with reference to any Person other than the Company shall mean the capital stock of such Person with the greatest voting power, or the equity securities or other equity interest having power to control or direct the management of, such Person. (h)"Person" shall mean any individual, firm, corporation or other entity. (i) "Preferred Stock" shall mean shares of Series A Junior Participating Preferred Stock, $.10 par value, of the Company. (j) "Stock Acquisition Date" shall mean the first date of public announcement by the Company or an Acquiring Person that an Acquiring Person has become such. (k) "Subsidiary" shall mean, with reference to any other Person, any corporation of which a majority of any class of equity security is beneficially owned, directly or indirectly, by any such other Person. -5- Section 2. APPOINTMENT OF RIGHTS AGENT. The Company hereby appoints the Rights Agent to act as agent for the Company and the holders of the Rights (who, in accordance with Section 3 hereof, shall prior to the Distribution Date also be the holders of the Common Stock) in accordance with the terms and conditions hereof, and the Rights Agent hereby accepts such appointment. The Company may from time to time appoints such Co-Rights Agents as it may deem necessary or desirable. Section 3. ISSUE OF RIGHT CERTIFICATES. (a) Until the earlier of (i) the close of business on the tenth day after the Stock Acquisition Date or (ii) the close of business on the tenth day after the date of the commencement of, or first public announcement of the intent to commence, a tender or exchange offer by any Person (other than the Company, any Subsidiary of the Company or any employee benefit plan of the Company or of any subsidiary of the Company or any entity organized, appointed or established by the Company for or pursuant to the terms of any such plan), if upon consummation thereof, such Person would be the Beneficial Owner of 30% or more of the outstanding shares of Common Stock (including any such date which is after the date of this Agreement and prior to the issuance of the Rights; the earlier of such dates being herein referred to as the "Distribution Date"), (x) the Rights will be evidenced (subject to the provisions of Paragraph (b) of this Section 3) by the certificates for the Common Stock registered in the names of the holders of the Common Stock (which certificates for the Common Stock shall be deemed also to be certificates for Rights) and not by separate certificates and (y) the Rights will be transferable only in connection with the transfer of the underlying shares of Common Stock (including a transfer to the Company). As soon as practicable after the Distribution Date, the Rights Agent will send, by first-class, postage prepaid mail, to each record holder of the -6- Common Stock as of the close of business on the Distribution Date, at the address of such holder shown on the records of the Company, one or more right certificates, in substantially the form of Exhibit B hereto (the "Right Certificates"), evidencing one Right for each share of the Common Stock so held. In the event that an adjustment in the number of Rights per share of Common Stock has been made pursuant to Section 11(p) hereof, at the time the Rights Certificates are distributed, the Company shall make the necessary and appropriate rounding adjustments (as set forth in Section 14(a) hereof) so that Rights Certificates are distributed representing whole numbers of Rights and cash is paid in lieu of fractional Rights. As of and after the Distribution Date, the Rights will be evidenced solely by such Right Certificates. (b) With respect to certificates for the Common Stock outstanding as of the Record Date, until the Distribution Date, the Rights will be evidenced by such certificates for the Common Stock and the registered holders of the Common Stock shall also be the registered holders of the associated Rights. Until the earlier of the Distribution Date or the Expiration Date (as such term is defined in Section 7 hereof), the surrender for transfer of any of the certificates for the Common Stock outstanding on the Record Date shall also constitute the transfer of the Rights associated with the Common Stock represented by such certificate. (c) Certificates for the shares of Common Stock issued after the date of this Agreement, but prior to the earlier of the Distribution Date or the Expiration Date, shall be deemed also to be certificates for Rights, and shall bear the following legend: This certificate also evidences and entitles the holder hereof to certain Rights as set forth in an Amended and Restated Rights Agreement between Rykoff-Sexton, Inc. and Chemical Bank, dated as of May 15, 1996 (the "Rights Agreement"), the terms of which are hereby incorporated herein by reference and a copy of which is on file at the principal executive offices of Rykoff-Sexton, Inc. Under certain circumstances, as set forth in the Rights Agreement, such Rights will be evidenced by separate certificates and will no -7- longer be evidenced by this Certificate. Rykoff-Sexton, Inc. will mail to the holder of this certificate a copy of the Rights Agreement without charge promptly after receipt of a written request therefor. Under certain circumstances, Rights issued to, or held by, Acquiring Persons or Affiliates or Associates thereof (as such terms are defined in the Rights Agreement) and any subsequent holder of such Rights may become null and void. With respect to such certificates containing the foregoing legend, until the earlier of the Distribution Date or the Expiration Date, the Rights associated with the Common Stock represented by such certificates shall be evidenced by such certificates alone and the registered holders of Common Stock shall also be the registered holders of the associated Rights, and the surrender for transfer of any of such certificates shall also constitute the transfer of the Rights associated with the shares of Common Stock represented by such certificate. Section 4. FORM OF RIGHT CERTIFICATES. (a) The Right Certificates (and the forms of election to exercise and of assignment to be printed on the reverse thereof) shall be substantially in the form attached hereto as Exhibit B and may have such marks of identification or designation and such legends, summaries or endorsements printed thereon as the Company may deem appropriate and as are not inconsistent with the provisions of this Agreement, or as may be required to comply with any applicable law or with any rule or regulation made pursuant thereto or with any rule or regulation of any stock exchange on which the Rights may from time to time be listed, or to conform to usage. Subject to the provisions of Sections 11 and 22 hereof, the Right Certificates, whenever distributed, shall be dated as of the Record Date and on their face shall entitle the holders thereof to purchase such number of shares of Preferred Stock as shall be set forth therein at the price per share set forth therein (the "Purchase Price"), but the number of shares and the Purchase Price shall be subject to adjustments as provided herein. -8- (b) Any Right Certificate issued pursuant to Section 3(a) or Section 22 hereof that represents Rights beneficially owned by: (i) an Acquiring Person or any Associate or Affiliate of an Acquiring Person, (ii) a transferee of an Acquiring Person (or such Associate or Affiliate) who becomes a transferee after the Acquiring Person becomes such, and (iii) a transferee of an Acquiring Person (or such Associate or Affiliate) who becomes a transferee prior to or concurrently with the Acquiring Person becoming such and receives such Rights pursuant to either (A) a transfer (whether or not for consideration) from the Acquiring Person to or on behalf of holders of equity interests in such Acquiring Person or to any Person with whom the Acquiring Person has any continuing agreement, arrangement or understanding regarding the transferred Rights or (B) a transfer which the Board of Directors otherwise concludes in good faith (as determined in its discretion by the vote of a majority of the Directors then in office) is part of a plan, arrangement or understanding which has as a primary purpose or effect avoidance of Section 7(e) hereof, and any Right Certificate issued pursuant to Section 6 or Section 11 hereof upon transfer, exchange, replacement or adjustment of any other Right Certificate referred to in this sentence, shall contain (to the extent feasible and reasonably identifiable as such) the following legend: The Rights represented by this Right Certificate are or were beneficially owned by a Person who was or became an Acquiring Person or an Affiliate or Associate of an Acquiring Person (as such terms are defined in the Rights Agreement). Accordingly, this Right Certificate and the Rights represented hereby may become void in the circumstances specified in Section 7(e) of such Agreement. Sect ion 5. COUNTERSIGNATURE AND REGISTRATION. (a) The Right Certificates shall be executed on behalf of the Company in the manner provided in the By-Laws of the Company for Common Stock certificates. The Right -9- Certificates shall be countersigned by the Rights Agent manually or by facsimile signature and shall not be valid for any purpose unless so countersigned. In case any officer of the Company who shall have signed any of the Right Certificates shall cease to be such officer of the Company before countersignature by the Rights Agent and issuance and delivery by the Company, such Right Certificates, nevertheless, may be countersigned by the Rights Agent and issued and delivered by the Company with the same force and effect as though the person who signed such Right Certificates had not ceased to be such officer of the Company; and any Right Certificate may be signed on behalf of the Company by any person who, at the actual date of the execution of such Right Certificate, shall be a proper officer of the Company to sign such Right Certificate, although at the date of the execution of this Rights Agreement any such person was not such an officer. (b) Following the Distribution Date, the Rights Agent will keep or cause to be kept, at one of its offices, books for registration and transfer of the Right Certificates issued hereunder. Such books shall show the names and addresses of the respective holders of the Right Certificates, the number of Rights evidenced on its face by each of the Right Certificates and the date of each of the Right Certificates. Section 6. TRANSFER, SPLIT UP, COMBINATION AND EXCHANGE OF RIGHT CERTIFICATES. MUTILATED, DESTROYED, LOST OR STOLEN RIGHT CERTIFICATES. (a) Subject to the provisions of Section 14 hereof, at any time after the close of business on the Distribution Date, and at or prior to the close of business on the Expiration Date, any Right Certificate or Certificates may be transferred, split up, combined or exchanged for another Right Certificate or Right Certificates, entitling the registered holder to purchase a like number of shares of Preferred Stock as the Right Certificate or Right Certificates -10- surrendered then entitled such holder to purchase. Any registered holder desiring to transfer, split up, combine or exchange any Right Certificate shall make such request in writing delivered to the Rights Agent, and shall surrender the Right Certificate or Right Certificates to be transferred, split up, combined or exchanged at the office of the Rights Agent designated for such purpose. Thereupon the Rights Agent shall countersign and deliver to the person entitled thereto a Right Certificate or Right Certificates, as the case may be, as so requested. The Company may require payment of a sum sufficient to cover any tax or governmental charge that may be imposed in connection with any transfer, split up, combination or exchange of Right Certificates. (b) Upon receipt by the Company and the Rights Agent of evidence reasonably satisfactory to them of the loss, theft, destruction or mutilation of a Right Certificate, and, in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to them, and reimbursement to the Company and the Rights Agent of all reasonable expenses incidental thereto, and upon surrender to the Rights Agent and cancellation of the Right Certificate if mutilated, the Company will execute and deliver a new Right Certificate of like tenor to the Rights Agent for countersignature and delivery to the registered owner in lieu of the Right Certificate so lost, stolen, destroyed or mutilated. Section 7. EXERCISE OF RIGHTS; PURCHASE PRICE; EXPIRATION DATE OF RIGHTS. (a) The registered holder of any Right Certificate may exercise the Rights evidenced thereby (except as otherwise provided herein, including, without limitation, the restrictions on exercisability set forth in Section 9(c), Section 11(a) (iii) and Section 23(a) hereof) in whole or in part at any time after the Distribution Date upon surrender of the Right Certificate, with the form of election to exercise on the reverse side thereof duly executed, to the Rights Agent, together with payment of the Purchase Price for each one two- hundredth of a share -11- of Preferred Stock as to which the Rights are exercised, at or prior to the earlier of (i) the close of business on May 15, 2006 (the "Final Expiration Date"), or (ii) the time at which the Rights are redeemed as provided in Section 23 (such earlier date being herein referred to as the "Expiration Date"). (b) The Purchase Price for each one two-hundredth of a share of Preferred Stock pursuant to the exercise of a Right shall initially be $100.00, and shall be subject to adjustment from time to time as provided in Section 11 hereof and shall be payable in lawful money of the United States of America in accordance with paragraph (c) below. (c) Upon receipt of a Right Certificate representing exercisable Rights, with the form of election to exercise duly executed, accompanied by payment (in cash, or by certified check or bank draft payable to the order of the Company) of the Purchase Price for the shares to be purchased and an amount equal to any applicable transfer tax, the Rights Agent shall thereupon promptly (i) (A) requisition from any transfer agent of the shares of Preferred Stock (or make available, if the Rights Agent is the transfer agent for such shares) certificates for the number of shares of Preferred Stock to be purchased and the Company hereby irrevocably authorizes its transfer agent to comply with all such requests, or (B) if the Company, in its sole discretion, shall have elected to deposit the shares of Preferred Stock issuable upon exercise of the Rights into a depositary, requisition from the depositary agent depositary receipts representing such number of one two-hundredths of a share of Preferred Stock as are to be purchased (in which case certificates for the shares of Preferred Stock represented by such receipts shall be deposited by the transfer agent with the depositary agent) and the Company will direct the depositary agent to comply with such request; (ii) requisition from the Company the amount of cash, if any, to be paid in lieu of fractional shares in accordance with Section 14 -12- hereof; (iii) after receipt of such certificates or depositary receipts, cause the same to be delivered to or upon the order of the registered holder of such Right Certificate, registered in such name or names as may be designated by such holder and (iv) after receipt thereof, deliver such cash, if any, to or upon the order of the registered holder of such Right Certificate. In the event that the Company is obligated to issue other securities of the Company, pay cash and/or distribute other property pursuant to Section 11(a) (iii) hereof, the Company will make all arrangements necessary so that such other securities, cash and/or property are available for distribution by the Rights Agent, if and when appropriate. (d) In case the registered holder of any Right Certificate shall exercise less than all the Rights evidenced thereby, a new Right Certificate evidencing Rights equivalent to the Rights remaining unexercised shall be issued by the Rights Agent to the registered holder of such Right Certificate or to his duly authorized assigns, subject to the provisions of Section 14 hereof. (e) Notwithstanding anything in this Agreement to the contrary, from and after the occurrence of an Acquisition Event, any Rights beneficially owned by (a) an Acquiring Person or an Associate or Affiliate of an Acquiring Person, (b) a transferee of an Acquiring Person (or such Associate or Affiliate) who becomes a transferee after the Acquiring Person becomes such, and (c) a transferee of an Acquiring Person (or such Associate or Affiliate) who becomes a transferee prior to or concurrently with the Acquiring Person becoming such and receives such Rights pursuant to either (i) a transfer (whether or not for consideration) from the Acquiring Person, to or on behalf of holders of equity interests in such Acquiring Person or to any Person with whom the Acquiring Person has any continuing agreement, arrangement or understanding regarding the transferred Rights, or (ii) a transfer which the Board of Directors -13- otherwise concludes in good faith (as determined in its discretion by the vote of a majority of the Directors then in office) is part of a plan, arrangement or understanding which has as a primary purpose or effect of avoidance of this Section 7(e), shall become null and void without any further action, and any holder of such Rights shall thereupon have no rights whatsoever with respect to such Rights, whether under any provision of this Agreement or otherwise, from and after the occurrence of an Acquisition Event. The Company shall use all reasonable efforts to insure that the provisions of this Section 7(e) hereof are complied with, but shall have no liability to any holder of Rights for the inability to make any determinations with respect to an Acquiring Person or its Affiliates, Associates or transferees hereunder. Section 8. CANCELLATION AND DESTRUCTION OF RIGHT CERTIFICATES. All Right Certificates surrendered for the purpose of exercise, transfer, split up, combination or exchange shall, if surrendered to the Company or to any of its agents, be delivered to the Rights Agent for cancellation or in canceled form, or, if surrendered to the Rights Agent, shall be canceled by it, and no Right Certificates shall be issued in lieu thereof except as expressly permitted by any of the provisions of this Agreement. The Company shall deliver to the Rights Agent for cancellation and retirement, and the Rights Agent shall so cancel and retire, any other Right Certificate purchased or acquired by the Company otherwise than upon the exercise thereof. The Rights Agent shall deliver all canceled Right Certificates to the Company. Section 9. RESERVATION AND AVAILABILITY OF CAPITAL STOCK. (a) The Company covenants and agrees that it will cause to be reserved and kept available out of its authorized and unissued shares of Preferred Stock (and, following the occurrence of an Acquisition Event, Common Stock and/or other securities) or any authorized and issued shares of Preferred Stock (and, following the occurrence of an Acquisition Event, -14- Common Stock and/or other securities) held in its treasury, the number of shares of Preferred Stock (and, following the occurrence of an Acquisition Event, Common Stock and/or other securities) that, except as provided in Section 11 (a) (iii) hereof, will be sufficient to permit the exercise in full of all outstanding Rights. (b) So long as the shares of Preferred Stock (and, following the occurrence of an Acquisition Event, Common Stock and/or other securities) issuable upon the exercise of Rights may be listed on any national securities exchange, the Company shall use its best efforts to cause, from and after such time as the Rights become exercisable, all shares reserved for such issuance to be listed on such exchange upon official notice of issuance upon such exercise. (c) The Company shall use its best efforts to (i) file, as soon as practicable following the first occurrence of an Acquisition Event (if not required prior to such occurrence) , a registration statement under the Securities Act of 1933 (the "Act"), with respect to the Rights and the securities purchasable upon the exercise of the Rights on an appropriate form, (ii) cause such registration statement to become effective as soon as practicable after such filing, and (iii) cause such registration statement to remain effective (with a prospectus at all times meeting the requirements of the Act) until the date of the expiration of the Rights. The Company will also take such action as may be appropriate under the blue sky laws of the various states. The Company may temporarily suspend, for a period of time not to exceed ninety (90) days, the exercisability of the Rights in order to prepare and file any required Registration Statement. Upon any such suspension, the Company shall issue a public announcement stating that the exercisability of the Rights has been temporarily suspended. (d) The Company covenants and agrees that it will take all such action as may be necessary to ensure that all shares of Preferred Stock (and, following the occurrence of an -15- Acquisition Event, Common Stock and/or other securities) delivered upon exercise of Rights shall, at the time of delivery of the certificates for such shares (subject to payment of the Purchase Price), be duly and validly authorized and issued and fully paid and nonassessable shares. (e) The Company further covenants and agrees that it will pay when due and payable any and all federal and state transfer taxes and charges which may be payable in respect of the issuance or delivery of the Right Certificates or of any certificates for shares of Preferred Stock (or Common Stock and/or other securities, as the case may be) upon the exercise of Rights. The Company shall not, however, be required to pay any transfer tax which may be payable in respect of any transfer or delivery of Right Certificates to a Person other than, or the issuance or delivery of the shares of Preferred Stock (or Common Stock and/or other securities, as the case may be) in respect of a name other than that of, the registered holder of the Right Certificate evidencing Rights surrendered for exercise or to issue or deliver any certificates for shares of Preferred Stock (or Common Stock and/or other securities, as the case may be) in a name other than that of the registered holder upon the exercise of any Rights until any such tax shall have been paid (any such tax being payable by the holder of such Right Certificate at the time of surrender) or until it has been established to the Company's satisfaction that no such tax is due. Section 10. PREFERRED STOCK RECORD DATE. Each Person in whose name any certificate for shares of Preferred Stock (or Common Stock, as the case may be) is issued upon the exercise of Rights shall for all purposes be deemed to have become the holder of record of the shares of Preferred Stock (or Common Stock, as the case may be) represented thereby on, and such certificate shall be dated, the date upon which the Right Certificate evidencing such Rights was duly surrendered and payment of the Purchase Price (and any applicable transfer taxes) was -16- made; PROVIDED, HOWEVER, that if the date of such surrender and payment is a date upon which the Preferred Stock (or Common Stock, as the case may be) transfer books of the Company are closed, such Person shall be deemed to have become the record holder of such shares on, and such certificate shall be dated, the next succeeding Business Day on which the Preferred Stock (or Common Stock, as the case may be) transfer books of the Company are open. Prior to the exercise of the Rights evidenced thereby, the holder of a Right Certificate shall not be entitled to any rights of a shareholder of the Company with respect to shares for which the Rights shall be exercisable, including, without limitation, the right to vote, to receive dividends or other distributions or to exercise any preemptive rights, and shall not be entitled to receive any notice of any proceedings of the Company, except as provided herein. Section 11. ADJUSTMENT OF PURCHASE PRICE, NUMBER OF SHARES OR NUMBER OF RIGHTS. The Purchase Price, the number of shares covered by each Right and the number of Rights outstanding are subject to adjustment from time to time as provided in this Section 11. (a) (i) In the event the Company shall at any time after the date of this Agreement (A) declare a dividend on the Preferred Stock payable in shares of Preferred Stock,(B) subdivide the outstanding shares of Preferred Stock, (C) combine the outstanding shares of Preferred Stock into a smaller number of shares or (D) issue any shares of its capital stock in a reclassification of the Preferred Stock (including any such reclassification in connection with a consolidation or merger in which the Company is the continuing or surviving corporation), except as otherwise provided in this Section 11(a) and in Section 7(e) hereof, the Purchase Price in effect at the time of the record date for such dividend or of the effective date of such subdivision, combination or reclassification, and the number and kind of shares of Preferred Stock or capital stock, as the case may be, issuable on such date, shall be proportionately adjusted so that -17- the holder of any Right exercised after such time shall be entitled to receive the aggregate number and kind of shares of Preferred Stock or capital stock, as the case may be, which, if such Right had been exercised immediately prior to such date and at a time when the Preferred Stock transfer books of the Company were open, he would have owned upon such exercise and been entitled to receive by virtue of such dividend, subdivision, combination or reclassification. If an event occurs which would require an adjustment under both Section 11 (a) (i) and Section 11(a) (ii) , the adjustment provided for in this Section 11 (a) (i) shall be in addition to, and shall be made prior to any adjustment required pursuant to Section 11 (a) (ii). (ii) In the event: (A) any Acquiring Person or any Associate or Affiliate of any Acquiring Person, at any time after the date of this Agreement, directly or indirectly, (1) shall merge into the Company or otherwise combine with the Company and the Company shall be the continuing or surviving corporation of such merger or combination and the Common Stock of the Company shall remain outstanding and unchanged, (2) shall, in one or more transactions, other than in connection with the exercise of Rights or the exercise or conversion of securities exchangeable for or convertible into capital stock of the Company or any of its Subsidiaries, transfer any assets to the Company or any of its Subsidiaries in exchange (in whole or in part) for shares of any class of capital stock of the Company or any of its Subsidiaries or for securities exercisable for or convertible into shares of any class of capital stock of the Company or any of its Subsidiaries or otherwise obtain from the Company or any of its Subsidiaries, with or without consideration, any additional shares of any class of capital stock of the Company or any of its Subsidiaries or securities exercisable for or convertible into shares of any class of capital stock of the Company or any of its Subsidiaries (other than as part of a pro rata distribution to all holders of such shares -18- of any class of capital stock of the Company or any of its Subsidiaries), (3) shall sell, purchase, lease, exchange, mortgage, pledge, transfer or otherwise dispose (in one or more transactions), to, from, with or of, as the case may be, the Company or any of its Subsidiaries, assets (including securities) on terms and conditions less favorable to the Company than the Company would be able to obtain in arm's-length negotiation with an unaffiliated third party, (4) shall receive any compensation from the Company or any of the Company's Subsidiaries other than compensation for full-time employment as a regular employee at rates in accordance with the Company's (or its Subsidiaries') past practices, or (5) shall receive the benefit, directly or indirectly (except proportionately as a shareholder), of any loans, advances, guarantees, pledges or other financial assistance or any tax credits or other tax advantage provided by the Company or any of its Subsidiaries; (B) any Person (other than the Company, any Subsidiary of the Company, any employee benefit plan of the Company or of any Subsidiary of the Company, or any entity organized, appointed or established by the Company for or pursuant to the terms of any such plan), alone or together with its Affiliates and Associates, shall become the Beneficial Owner of 15% or more of the shares of Common Stock then outstanding, unless the event causing the 15% threshold to be crossed is (1) an acquisition of shares of Common Stock by the ML Entities, if the ML Entities shall have executed a written agreement with the Company (and approved by the Company's Board of Directors) on or prior to the date on which the ML Entities became the Beneficial Owner of 15% or more of the shares of Common Stock then outstanding, which agreement imposes one or more limitations on the amount of the ML Entities' Beneficial Ownership of shares of Common Stock, and if, and so long as, such written agreement (or any amendment thereto approved by at least a majority of the members of the Board of Directors who -19- are not ML Directors) continues to be in effect and binding on the ML Entities and the ML Entities are in compliance (as determined by the Company's Board of Directors in its discretion by at least a majority of the members of the Board of Directors who are not ML Directors) with the terms of such written agreement (including any such amendment); PROVIDED, HOWEVER, that no amendment of any such agreement shall cure any prior breach of such agreement or any amendment thereto; (2) a transaction set forth in Section 13(a) hereof, or (3) an acquisition of shares of Common Stock pursuant to a tender offer or an exchange offer for all outstanding shares of Common Stock at a price and on terms determined by at least a majority of the members of the Board of Directors who are not (x) officers of the Company, (y) representatives, nominees, Affiliates or Associates of an Acquiring Person, or (z) ML Directors, after receiving advice from one or more investment banking firms, to be (a) at a price that is fair to stockholders (taking into account all factors which such members of the Board deem relevant including, without limitation, prices that could reasonably be achieved if the Company or its assets were sold on an orderly basis designed to realize maximum value) and (b) otherwise in the best interests of the Company and its stockholders, or; (C) during such time as there is an Acquiring Person, there shall be any reclassification of securities (including any reverse stock split), or recapitalization of the Company (whether or not such reclassification or recapitalization occurs in a merger in which the Company survives), or merger or consolidation of the Company with any of its Subsidiaries or other transaction or series of transactions involving the Company (whether or not with or into or otherwise involving an Acquiring Person or any Affiliate or Associate thereof) which has the effect, directly or indirectly, of increasing by more than 1% the proportionate share of the outstanding shares of any class of equity securities of the Company or any of its Subsidiaries -20- which is directly or indirectly beneficially owned by any Acquiring Person or any Associate or Affiliate of any Acquiring Person, then proper provision shall be made so that each holder of a Right, except as provided below and in Section 7(e) hereof, shall thereafter have a right to receive, upon exercise thereof at the then current Purchase Price in accordance with the terms of this Agreement, in lieu of shares of Preferred Stock, such number of shares of Common Stock of the Company as shall equal the result obtained by (x) multiplying the then current Purchase Price by the then number of one hundredths of a share of Preferred Stock for which a Right is then exercisable and dividing that product by (y) 50% of the current market price (determined pursuant to Section 11(d) hereof) per share of Common Stock on the date on which the first of the events listed above in this subparagraph (ii) occurs. (iii) In lieu of issuing shares of Common Stock in accordance with Section 11(a) (ii) hereof, the Company's Board of Directors may, if the Board determines in its discretion (by the vote of a majority of Directors then in office), that such action is necessary or appropriate and not contrary to the interests of holders of Rights, elect to issue or pay, upon the exercise of the Rights, cash, property, shares of Common Stock, other securities or any combination thereof having an aggregate value equal to the value of the shares of Common Stock which otherwise would have been issuable pursuant to Section 11(a) (ii), which value shall be determined by a nationally recognized investment banking firm selected by the Company's Board of Directors (as determined by the Board in its discretion by the vote of a majority of Directors then in office). For purposes of the preceding sentence, the value of any preferred stock which the Board of Directors determines to be a "common stock equivalent" shall be deemed to have the same value as the Common Stock. Any such election by the Board of Directors must be made and publicly announced within 60 days of the date on which the first of the Acquisition Events described in -21- Section 11(a) (ii) occurs. Following the occurrence of one of the Acquisition Events described in Section 11 (a) (ii), the Board of Directors may (as determined by the Board in its discretion by the vote of a majority of Directors then in office) suspend the exercisability of the Rights for a period of up to 60 days following the occurrence of such Acquisition Event to the extent that the Board has not determined whether to exercise its rights of election under this paragraph (a) (iii). In the event of any such suspension, the Company shall issue a public announcement stating that the exercisability of the Rights has been temporarily suspended. (b) In the case the Company shall fix a record date for the issuance of rights, options or warrants to all holders of Preferred Stock entitling them (for a period expiring within 45 calendar days after such record date) to subscribe for or purchase Preferred Stock (or shares having the same rights, privileges and preferences as the shares of Preferred Stock ("equivalent preferred stock")) or securities convertible into Preferred Stock or equivalent preferred stock at a price per share of Preferred Stock (or having a conversion price per share, if a security convertible into Preferred Stock or equivalent preferred stock) less than the current market price (as determined pursuant to Section 11(d) hereof) per share of Preferred Stock on such record date, the Purchase Price to be in effect after such record date shall be determined by multiplying the Purchase Price in effect immediately prior to such record date by a fraction, of which the numerator shall be the number of shares of Preferred Stock outstanding on such record date, plus the number of shares of Preferred Stock which the aggregate offering price of the total number of shares of Preferred Stock and/or equivalent preferred stock so to be offered (and/or the aggregate initial conversion price of the convertible securities so to be offered) would purchase at such current market price and of which the denominator shall be the number of shares of Preferred Stock outstanding on such record date, plus the number of additional shares of Preferred Stock -22- and/or equivalent preferred stock to be offered for subscription or purchase (or into which the convertible securities so to be offered are initially convertible.) In case such subscription price may be paid in a consideration part or all of which shall be in a form other than cash, the value of such consideration shall be as determined in good faith by the Board, whose determination shall be described in a statement filed with the Rights Agent and shall be binding upon the Rights Agent. Shares of Preferred Stock owned by or held for the account of the Company shall not be deemed outstanding for the purpose of any such computation. Such adjustment shall be made successively whenever such a record date is fixed; and in the event that such rights or warrants are not so issued, the Purchase Price shall be adjusted to be the Purchase Price which would then be in effect if such record date had not been fixed. (c) In case the Company shall fix a record date for a distribution to all holders of Preferred Stock (including any such distribution made in connection with a consolidation or merger in which the Company is the continuing corporation) of evidences of indebtedness, cash (other than a regular periodic cash dividend out of earnings or retained earnings), assets (other than a dividend payable in Preferred Stock, but including any dividend payable in stock other than Preferred Stock) or subscription rights or warrants (excluding those referred to in Section 11(b)), the Purchase Price to be in effect after such record date shall be determined by multiplying the Purchase Price in effect immediately prior to such record date by a fraction, of which the numerator shall be the current market price (as determined pursuant to Section 11(d) hereof) per one two-hundredth of a share of Preferred Stock on such record date, less the fair market value (as determined in good faith by the Board, whose determination shall be described in a statement filed with the Rights Agent) of the portion of the cash, assets or evidences of indebtedness so to be distributed or of such subscription rights or warrants applicable to a share -23- of Preferred Stock and of which the denominator shall be such current market price (as determined pursuant to Section 11(d) hereof) per one two-hundredth of a share of Preferred Stock. Such adjustments shall be made successively whenever such a record date is fixed; and in the event that such distribution is not so made, the Purchase Price shall be adjusted to be the Purchase Price which would have been in effect if such record date had not been fixed. (d) (i) For the purpose of any computation hereunder, the "current market price" per share of the Common Stock on any date shall be deemed to be the average of the daily closing prices per share of the Common Stock for the 30 consecutive trading days (as such term is hereinafter defined) immediately prior to such date; PROVIDED, HOWEVER, that in the event that the current market price per share of the Common Stock is determined during a period following the announcement by the issuer of such Common Stock of (A) a dividend or distribution on such Common Stock payable in shares of such Common Stock or securities convertible into shares of such Common Stock, (other than the Rights), or (B) any subdivision, combination or reclassification of such Common Stock, and prior to the expiration of the thirty (30) Trading Day Period after the ex-dividend date for such dividend or distribution, or the record date for such subdivision, combination or reclassification then, and in each such case, the current market price shall be appropriately adjusted to take into account ex-dividend trading. The closing price for each day shall be the last sale price, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the New York Stock Exchange or, if the shares of Common Stock are not listed or admitted to trading on the New York Stock Exchange, as reported in the principal consolidated transaction reporting system with respect to securities listed on the principal national securities -24- exchange on which the shares of Common Stock are listed or admitted to trading or, if the shares of Common Stock are not listed or admitted to trading on any national securities exchange, the last quoted price or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by the National Association of Securities Dealers, Inc. Automated Quotations System ("NASDAQ") or such other system then in use, or, if on any such date the shares of Common Stock are not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the Common Stock selected by the Board. If on any such date no market maker is making a market in the Common Stock, the fair value of such shares on such date as determined in good faith by the Board shall be used. The term "Trading Day" shall mean a day on which the principal national securities exchange on which the shares of Common Stock are listed or admitted to trading is open for the transaction of business or, if the shares of Common Stock are not listed or admitted to trading on any national securities exchange, a Business Day. If the Common Stock is not publicly held or not so listed or traded, "current market price" per share shall mean the fair value per share as determined in good faith by the Company's Board of Directors (as determined by the Board in its discretion by the vote of a majority of Directors then in office ) whose determination shall be described in a statement filed with the Rights Agent and shall be conclusive for all purposes. (ii) For the purpose of any computation hereunder, the "current market price" per share of Preferred Stock shall be determined in the same manner as set forth above for the Common Stock in clause (i) of this Section 11(d). If the current market price per share of Preferred Stock cannot be determined in the manner provided above, the "current market price" per share of Preferred Stock shall be conclusively deemed to be an amount equal to 200 times the -25- current market price per share of Common Stock, as appropriately adjusted for stock splits, stock dividends or similar transactions after the date hereof. If neither the Common Stock nor the Preferred Stock is publicly held or so listed or traded, "current market price" per share shall mean the fair value per share as determined in good faith by the Company's Board of Directors (as determined by the Board in its discretion by the vote of a majority of Directors then in office) whose determination shall be described in a statement filed with the Rights Agent and shall be conclusive for all purposes. (e) Anything herein to the contrary notwithstanding, no adjustment in the Purchase Price shall be required unless such adjustment would require an increase or decrease of at least one percent (1%) in such price; PROVIDED, HOWEVER, that any adjustments which by reason of this Section 11(e) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 11 shall be made to the nearest cent or to the nearest ten-thousandth of a share of Common Stock or other share or one-millionth of a share of Preferred Stock, as the case may be. Notwithstanding the first sentence of this Section 11(e), any adjustment required by this Section 11 shall be made no later than the earlier of (i) three (3) years from the date of the transaction which mandates such adjustment or (ii) the Expiration Date. (f) If as a result of an adjustment made pursuant to Section 11 (a) or Section 13, the holder of any Right thereafter exercised shall become entitled to receive any shares of capital stock other than Preferred Stock, thereafter the number of such other shares so receivable upon exercise of any Right shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the shares contained in Section 11(a) (b), (c), (e), (g) , (h) , (i) , (j) , (k) and (m) , and the provisions of Sections 7, 9, 10, -26- 13 and 14 hereof with respect to the Preferred Stock shall apply on like terms to any such other shares. (g) All Rights originally issued by the Company subsequent to any adjustment made to the Purchase Price hereunder shall evidence the right to purchase, at the adjusted Purchase Price, the number of shares of Preferred Stock purchasable from time to time hereunder upon exercise of the Rights, all subject to further adjustment as provided herein. (h) Unless the Company shall have exercised its election as provided in Section 11(i), upon each adjustment of the Purchase Price as a result of the calculations made in Section 11(b) and (c), each Right outstanding immediately prior to the making of such adjustment shall thereafter evidence the right to purchase, at the adjusted Purchase Price, that number of one hundredths of a share of Preferred Stock (calculated to the nearest one-millionth) obtained by (i) multiplying (x) the number of one two-hundredths of a share covered by a Right immediately prior to this adjustment by (y) the Purchase Price in effect immediately prior to such adjustment of the Purchase Price, and (ii) dividing the product so obtained by the Purchase Price in effect immediately after such adjustment of the Purchase Price. (i) The Company may elect on or after the date of any adjustment of the Purchase Price to adjust the number of Rights, in substitution for any adjustment in the number of shares of Preferred Stock purchasable upon the exercise of a Right. Each of the Rights outstanding after such adjustment in the number of Rights shall be exercisable for the number of one two-hundredths of a share of Preferred Stock for which a Right was exercisable immediately prior to such adjustment. Each Right held of record prior to such adjustment of the number of Rights shall become that number of Rights (calculated to the nearest one ten-thousandth) obtained by dividing the Purchase Price in effect immediately prior to adjustment of the Purchase -27- Price by the Purchase Price in effect immediately after adjustment of the PurchasePrice. The Company shall make a public announcement of its election to adjust the number of Rights, indicating the record date for the adjustment, and, if known at the time, the amount of the adjustment to be made. This record date may be the date on which the Purchase Price is adjusted or any day thereafter, but, if the Right Certificates have been issued, shall be at least ten (10) days later than the date of the public announcement. If Right Certificates have been issued, upon each adjustment of the number of Rights pursuant to this Section 11(i), the Company shall, as promptly as practicable, cause to be distributed to holders of record of Right Certificates on such record date Right Certificates evidencing, subject to Section 14 hereof, the additional Rights to which such holders shall be entitled as a result of such adjustment, or, at the option of the Company, shall cause to be distributed to such holders of record in substitution and replacement for the Right Certificates held by such holders prior to the date of adjustment, and upon surrender thereof, if required by the Company, new Right Certificates evidencing all the Rights to which such holders shall be entitled after such adjustment. Right Certificates so to be distributed shall be issued, executed and countersigned in the manner provided for herein (and may bear, at the option of the Company, the adjusted Purchase Price) and shall be registered in the names of the holders of record of Right Certificates on the record date specified in the public announcement. (j) Irrespective of any adjustment or change in the Purchase Price or the number of one two-hundredths of a share of Preferred Stock issuable upon the exercise of the Rights, the Right Certificates theretofore and thereafter issued may continue to express the Purchase Price per share and the number of shares which were expressed in the initial Right Certificates issued thereunder. -28- (k) Before taking any action that would cause an adjustment reducing the Purchase Price below the then stated value, if any, of the shares of Preferred Stock issuable upon exercise of the Rights, the Company shall take any corporate action which may, in the opinion of its counsel, be necessary in order that the Company may validly and legally issue fully paid and nonassessable shares of Preferred Stock at such adjusted Purchase Price. (1) In any case in which this Section 11 shall require that an adjustment in the Purchase Price be made effective as of a record date for a specified event, the Company may elect to defer until the occurrence of such event the issuance to the holder of any Right exercised after such record date the shares of Preferred Stock and other capital stock or securities of the Company, if any, issuable upon such exercise over and above the shares of Preferred Stock and other capital stock or securities of the Company, if any, issuable upon such exercise on the basis of the Purchase Price in effect prior to such adjustment; PROVIDED, HOWEVER, that the Company shall deliver to such holder a due bill or other appropriate instrument evidencing such holder's right to receive such additional shares upon the occurrence of the event requiring such adjustment. (m) Anything in this Section 11 to the contrary notwithstanding, the Company shall be entitled to make such reductions in the Purchase Price, in addition to those adjustments expressly required by this Section 11, as and to the extent that the Board of Directors shall determine in its discretion, (by the vote of a majority of Directors then in office) to be advisable in order that any (i) consolidation or subdivision of the Preferred Stock, (ii) issuance wholly for cash of any shares of Preferred Stock at less than the current market price, (iii) issuance wholly for cash of shares of Preferred Stock or securities which by their terms are convertible into or exchangeable for shares of Preferred Stock, (iv) stock dividends or (v) issuance of rights, options -29- or warrants referred to in this Section 11, hereafter made by the Company to holders of its Preferred Stock shall not be taxable to such stockholders. (n) The Company covenants and agrees that it shall not, at any time after the Distribution Date, (i) consolidate with, (ii) merge with or into, or (iii) sell or transfer (or permit any Subsidiary to sell or transfer), in one or more transactions, assets or earning power aggregating more than 50% of the assets or earning power of the Company and its Subsidiaries (taken as a whole) to any other Person if at the time of or immediately after such consolidation, merger or sale there are any rights, warrants or other instruments or securities outstanding or agreements in effect which would substantially diminish or otherwise eliminate the benefits intended to be afforded by the Rights. (o) The Company covenants and agrees that, after the Stock Acquisition Date, it will not, except as permitted by Section 23 hereof, take (or permit any Subsidiary to take) any action the purpose or effect of which is to diminish substantially or otherwise eliminate the benefits intended to be afforded by the Rights unless such action is approved by the Company's Board of Directors by the vote of a majority of Directors then in office. (p) Anything in this Agreement to the contrary notwithstanding, in the event that the Company shall at any time after the date of this Agreement and prior to the Distribution Date (i) declare a dividend on the outstanding shares of Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, (iii) combine the outstanding Common Stock into a smaller number of shares, or (iv) issue any shares of its capital stock in a reclassification of the outstanding Common Stock, the number of Rights associated with each share of Common Stock shall be proportionately adjusted so that the number of Rights thereafter associated with each share of Common Stock following any such event shall equal the result -30- obtained by multiplying the number of Rights associated with each share of Common Stock immediately prior to such event by a fraction the numerator which shall be the total number of shares of Common Stock outstanding immediately prior to the occurrence of the event and the denominator of which shall be the total number of shares of Common Stock outstanding immediately following the occurrence of such event. Section 12. CERTIFICATE OF ADJUSTED PURCHASE PRICE OR NUMBER OF SHARES. Whenever an adjustment is made as provided in Sections 11 and 13 hereof, the Company shall (a) promptly prepare a certificate setting forth such adjustment, and a brief statement of the facts accounting for such adjustment, (b) promptly file with the Rights Agent and with each transfer agent for the Preferred Stock and the Common Stock a copy of such certificate and (C) mail a brief summary thereof to each holder of a Right Certificate in accordance with Section 25 hereof. The Rights Agent shall be fully protected in relying on any such certificate and on any adjustment therein contained. -31- Section 13. CONSOLIDATION, MERGER OR SALE OR TRANSFER OF ASSETS OR EARNING POWER. (a) In the event that, following the Distribution Date, directly or indirectly, (x) the Company shall consolidate with, or merge with and into, any other Person, and the Company shall not be the continuing or surviving corporation of such consolidation or merger, (y) any Person shall consolidate with, or merge with or into, the Company, and the Company shall be the continuing or surviving corporation of such consolidation or merger and, in connection with such consolidation or merger, all or part of the outstanding shares of Common Stock shall be changed into or exchanged for stock or other securities of any other Person or cash or any other property, or (z) the Company shall sell or otherwise transfer (or one or more of its Subsidiaries shall sell or otherwise transfer), in one or more transactions, assets or earning power aggregating more than 50% of the assets or earning power of the Company and its Subsidiaries (taken as a whole) to any other Person or Persons (other than the Company or any Subsidiary of the Company), then, and in each case, proper provision shall be made so that (i) each holder of a Right, except as provided in Section 7(e) hereof, shall thereafter have the right to receive, upon the exercise thereof at the then-current Purchase Price in accordance with the terms of this Agreement, such number of validly authorized and issued, fully paid, non-assessable and freely tradable shares of Common Stock of the Principal Party (as hereinafter defined), not subject to any rights of first refusal, as shall be equal to the result obtained by (1) multiplying the then-current Purchase Price by the then number of one two-hundredths of a share of Preferred Stock for which a Right is then exercisable (without giving effect to the occurrence, if any, of any transaction described in Section 11 (a) (ii) hereof) and dividing that product by (2) 50% of the current market price (determined pursuant to Section 11(d) (i) hereof) per share of Common Stock of such Principal Party on the date of consummation of such consolidation, merger, sale or transfer; (ii) such -32- Principal Party shall thereafter be liable for, and shall assume, by virtue of such consolidation, merger, sale or transfer, all the obligations and duties of the Company pursuant to this Agreement; (iii) the term "Company" shall thereafter be deemed to refer to such Principal Party, it being specifically intended that the provisions of Section 11 hereof shall apply to such Principal Party; and (iv) such Principal Party shall take such steps (including, but not limited to, the reservation of a sufficient number of shares of its Common Stock) in connection with the consummation of any such transaction as may be necessary to assure that the provisions hereof shall thereafter be applicable, as nearly as reasonably may be, in relation to its shares of Common Stock thereafter deliverable upon the exercise of the Rights. (b) "Principal Party" shall mean (i) in the case of any transaction described in (x) or (y) of the first sentence of Section 13(a), the Person that is the issuer of any securities into which shares of Common Stock of the Company are converted in such merger or consolidation, and if no securities are so issued, the Person that is the other party to such merger or consolidation; and (ii) in the case of any transaction described in (z) of the first sentence in Section 13(a), the Person that is the party receiving the greatest portion of the assets or earning power transferred pursuant to such transaction or transactions; PROVIDED, HOWEVER, that in any such case, (1) if the Common Stock of such Person is not at such time and has not been continuously over the preceding twelve (12) month period registered under Section 12 of the Exchange Act, and such Person is a direct or indirect Subsidiary of another Person the Common Stock of which is and has been so registered, "Principal Party" shall refer to such other Person; and (2) in case such Person is a Subsidiary, directly or indirectly, of more than one Person, the Common Stocks of two or more of which are and have been so registered, "Principal Party" shall -33- refer to whichever of such Persons is the issuer of the Common Stock having the greatest aggregate market value. (c) The Company shall not consummate any such consolidation, merger, sale or transfer unless prior thereto the Company and such Principal Party shall have executed and delivered to the Rights Agent a supplemental agreement providing for the terms set forth in paragraphs (a) and (b) of this Section 13 and further providing that, as soon as practicable after the date of any consolidation, merger or sale or assets mentioned in paragraph (a) of this Section 13, the Principal Party will: (i) prepare and file a registration statement under the Act, with respect to the Rights and the securities purchasable upon exercise of the Rights on an appropriate form, and will use its best efforts to cause such registration statement to (A) become effective as soon as practicable after such filing and (B) remain effective (with a prospectus at all times meeting the requirements of the Act) until the Expiration Date; and (ii) will deliver to holders of the Rights historical financial statements for the Principal Party and each of its Affiliates which comply in all respects with the requirements for registration on Form 10 under the Exchange Act. The provisions of this Section 13 shall similarly apply to successive mergers or consolidations or sales or other transfers. In the event that one of the transactions described in Section 13 (a) hereof shall occur at any time after the occurrence of a transaction described in Section 11 (a) (ii) hereof, the Rights which have not theretofore been exercised shall thereafter become exercisable in the manner described in Section 13 (a). Section 14. FRACTIONAL RIGHTS AND FRACTIONAL SHARES. (a) The Company shall not be required to issue fractions of Rights, except prior to the Distribution Date as provided in Section 11 (p) hereof, or to distribute Right Certificates which evidence fractional Rights. In lieu of such fractional Rights, there shall be -34- paid to the registered holders of the Right Certificates with regard to which such fractional Rights would otherwise be issuable, an amount in cash equal to the same fraction of the current market value of a whole Right. For the purposes of this Section 14(a), the current market value of a whole Right shall be the closing price of the Rights for the Trading Day immediately prior to the date on which such fractional Rights would have been otherwise issuable. The closing price of the Rights for any day shall be the last sale price, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the New York Stock Exchange, or if the Rights are not listed or admitted to trading on the New York Stock Exchange, as reported in the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchanged on which the Rights are listed or admitted to trading or, if the Rights are not listed or admitted to trading on any national securities exchange, the last quoted price or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by NASDAQ or such other system then in use or, if on any such date the Rights are not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the Rights selected by the Board of Directors of the Company. If on any such date no such market maker is making a market in the Rights the fair value of the Rights on such date as determined in good faith by the Board shall be used. (b) The Company shall not be required to issue fractions of shares of Preferred Stock (other than fractions which are integral multiples of one two- hundredths of a share of Preferred Stock) upon exercise of the Rights or to distribute certificates which evidence fractional shares of Preferred Stock (other than fractions which are integral multiples of one two- -35- hundredth of a share of Preferred Stock). In lieu of fractional shares of Preferred Stock that are not integral multiples of one two-hundredths of a share of Preferred Stock, the Company may pay to the registered holders of Rights at the time such Rights are exercised as herein provided an amount in cash equal to the same fraction of the current market value of one two-hundredth of a share of Preferred Stock. For purposes of this Section 14(b), the current market value of one two-hundredth of a share of Preferred Stock shall be one two-hundredth of the closing price of a share of Preferred Stock (as determined pursuant to Section 11(d) (ii) hereof) for the Trading Day immediately prior to the date of such exercise. (c) Following the occurrence of an Acquisition Event, the Company shall not be required to issue fractions of shares of Common Stock upon exercise of the Rights or to distribute certificates which evidence fractional shares of Common Stock. In lieu of fractional shares of Common Stock, the Company may pay to the registered holders of Right Certificates at the time such Rights are exercised as herein provided an amount in cash equal to the same fraction of the current market value of one (1) share of Common Stock. For purposes of this Section 14(c), the current market value of one (1) share of Common Stock shall be the closing price of a share of Common Stock (as determined pursuant to Section 11(d) (i) hereof) for the Trading Day immediately prior to the date of such exercise. (d) The holder of a Right by the acceptance of the Rights expressly waives his right to receive any fractional Rights or any fractional shares upon exercise of a Right, except as permitted by this Section 14. Section 15. RIGHTS OF ACTION. All rights of action in respect of this Agreement are vested in the respective registered holders of the Right Certificates (and, prior to the Distribution Date, the registered holders of the Common Stock); and any registered holder of any Right Certificate -36- (or, prior to the Distribution Date, of the Common Stock) , without consent of the Rights Agent or of the holder of any other Right Certificate (or, prior to the Distribution Date, of the Common Stock), may, in his own behalf and for his own benefit, enforce, and may institute and maintain any suit, action or proceeding against the Company to enforce, or otherwise act in respect of, his right to exercise the Rights evidenced by such Right Certificate in the manner provided in such Right Certificate and in this Agreement. Without limiting the foregoing or any remedies available to the holders of Rights, it is specifically acknowledged that the holders of Rights would not have an adequate remedy at law for any breach of this Agreement and will be entitled to specific performance of the obligations under, and injunctive relief against actual or threatened violations of, the obligations of any Person subject to this Agreement. Section 16. AGREEMENT OF RIGHT HOLDERS. Every holder of a Right by accepting the same consents and agrees with the Company and the Rights Agent and with every other holder of a Right that: (a) prior to the Distribution Date, the Rights will be transferable only in connection with the transfer of the Common Stock; (b) after the Distribution Date, the Right Certificates are transferable only on the registry books of the Rights Agent if surrendered at the office of the Rights Agent designated for such purpose, duly endorsed or accompanied by a proper instrument of transfer; and (c) the Company and the Rights Agent may deem and treat the person in whose name a Right Certificate (or, prior to the Distribution Date, the associated Common Stock certificate) is registered as the absolute owner thereof and of the Rights evidenced thereby (notwithstanding any notations of ownership or writing on the Right Certificate or the associated Common Stock certificate made by anyone other than the Company or the Rights Agent) for all -37- purposes whatsoever, and neither the Company nor the Rights Agent shall be affected by any notice to the contrary. Section 17. RIGHT CERTIFICATE HOLDER NOT DEEMED A STOCKHOLDER. No holder, as such, of any Right Certificate shall be entitled to vote, receive dividends or be deemed for any purpose the holder of shares of Preferred Stock or any other securities of the Company which may at any time be issuable on the exercise of the Rights represented thereby, nor shall anything contained herein or in any Right Certificate be construed to confer upon the holder of any Right Certificate, as such, any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action, or to receive notice of meetings or other actions affecting stockholders (except as provided in Section 24), or to receive dividends or subscription rights, or otherwise, until the Right or Rights evidenced by such Right Certificate shall have been exercised in accordance with the provisions hereof. Section 18. CONCERNING THE RIGHTS AGENT. (a) The Company agrees to pay to the Rights Agent reasonable compensation for all services rendered by it hereunder and, from time to time, on demand of the Rights Agent, its reasonable expenses and counsel fees and other disbursements incurred in the administration and execution of this Agreement and the exercise and performance of its duties hereunder. The Company also agrees to indemnify the Rights Agent for, and to hold it harmless against, any loss, liability, or expense, incurred without negligence, bad faith or willful misconduct on the part of the Rights Agent, for anything done or omitted by the Rights Agent in connection with the acceptance and administration of this Agreement, including the costs and expenses of defending against any claim of liability in the premises. -38- (b) The Rights Agent shall be protected and shall incur no liability for or in respect of any action taken, suffered or omitted by it in connection with its administration of this Agreement in reliance upon any Right Certificate or certificate for the Common Stock or for other securities of the Company, instrument of assignment or transfer, power of attorney, endorsement, affidavit, letter, notice, direction, consent, certificate, statement, or other paper or document believed by it to be genuine and to be signed, executed and, where necessary, verified or acknowledged, by the proper Person or Persons. Section 19. MERGER OR CONSOLIDATION OR CHANGE OF NAME OF RIGHTS AGENT. (a) Any corporation into which the Rights Agent or any successor Rights Agent may be merged or with which it may be consolidated, or any corporation resulting from any merger or consolidation to which the Rights Agent or any successor Rights Agent shall be a party, or any corporation succeeding to the corporate trust business of the Rights Agent or any successor Rights Agent, shall be the successor to the Rights Agent under this Agreement without the execution or filing of any paper or any further act on the part of any of the parties hereto, PROVIDED that such corporation would be eligible for appointment as a successor Rights Agent under the provisions of Section 21 hereof. In case at the time such successor Rights Agent shall succeed to the agency created by this Agreement, any of the Right Certificates shall have been countersigned, but not delivered, any such successor Rights Agent may adopt the countersignature of the predecessor Rights Agent and deliver such Right Certificates so countersigned; and in case at that time any of the Right Certificates shall not have been countersigned, any successor Rights Agent may countersign such Right Certificates either in the name of any predecessor Rights Agent or in the name of the successor Rights Agent; and in all -39- such cases such Right Certificates shall have the full force provided in the Right Certificates and in this Agreement. (b) In case at any time the name of the Rights Agent shall be changed and at such time any of the Right Certificates shall have been countersigned, but not delivered, the Rights Agent may adopt the countersignature under its prior name and deliver Right Certificates so countersigned; and in case at that time any of the Right Certificates shall not have been countersigned, the Rights Agent may countersign such Right Certificates either in its prior name or in its changed name; and in all such cases such Right Certificates shall have the full force provided in the Right Certificates and in this Agreement. Section 20. DUTIES OF RIGHTS AGENT. The Rights Agent undertakes the duties and obligations imposed by this Agreement upon the following terms and conditions, by all of which the Company and the holders of Right Certificates, by their acceptance thereof, shall be bound: (a) The Rights Agent may consult with legal counsel (who may be legal counsel for the Company), and the opinion of such counsel shall be full and complete authorization and protection to the Rights Agent as to any action taken or omitted by it in good faith and in accordance with such opinion. (b) Whenever in the performance of its duties under this Agreement the Rights Agent shall deem it necessary or desirable that any fact or matter be proved or established by the Company prior to taking or suffering any action hereunder, such fact or matter (unless other evidence in respect thereof be herein specifically prescribed) may be deemed to be conclusively proved and established by a certificate signed by any one of the Chairman of the Board, Chief Executive Officer, President, a Vice President, the Treasurer or the Secretary of the Company and delivered to the Rights Agent; and such certificate shall be full authorization to the -40- Rights Agent for any action taken or suffered in good faith by it under the provisions of this Agreement in reliance upon such certificate. (c) The Rights Agent shall be liable hereunder only for its own negligence, bad faith or willful misconduct. (d) The Rights Agent shall not be liable for or by reason of any of the statements of fact or recitals contained in this Agreement or in the Right Certificates or be required to verify the same (except its countersignature on such Right Certificates), but all such statements and recitals are and shall be deemed to have been made by the Company only. (e) The Rights Agent shall not be under any responsibility in respect of the validity of this Agreement or the execution and delivery hereof (except the due execution hereof by the Rights Agent) or in respect of the validity or execution of any Right Certificate (except its countersignature thereof); nor shall it be responsible for any breach by the Company of any covenant or condition contained in this Agreement or in any Right Certificate; nor shall it be responsible for any adjustment required under the provisions of Sections 11 or 13 hereof or responsible for the manner, method or amount of any such adjustment or the ascertaining of the existence of facts that would require any such adjustment (except with respect to the exercise of Rights evidenced by Right Certificates after actual notice of any such adjustment); nor shall it by any act hereunder be deemed to make any representation or warranty as to the authorization or reservation of any shares of Common Stock or Preferred Stock to be issued pursuant to this Agreement or any Right Certificate or as to whether any shares of Common Stock or Preferred Stock will, when issued, be validly authorized and issued, fully paid and nonassessable. (f) The Company agrees that it will perform, execute, acknowledge and deliver or cause to be performed, executed, acknowledged and delivered all such further and -41- other acts, instruments and assurances as may reasonably be required by the Rights Agent for the carrying out or performing by the Rights Agent of the provisions of this Agreement. (g) The Rights Agent is hereby authorized and directed to accept instructions with respect to the performance of its duties hereunder from any one of the Chairman of the Board, Chief Executive Officer, President, a Vice- President, the Treasurer or the Secretary of the Company, and to apply to such officers for advice or instructions in connection with its duties, and it shall not be liable for any action taken or suffered to be taken by it in good faith in accordance with instructions of any such officer. (h) The Rights Agent and any stockholder, director, officer or employee of the Rights Agent may buy, sell or deal in any of the Rights or other securities of the Company or become pecuniarily interested in any transaction in which the Company may be interested, or contract with or lend money to the Company or otherwise act as fully and freely as though it were not Rights Agent under this Agreement. Nothing herein shall preclude the Rights Agent from acting in any other capacity for the Company or for any other legal entity. (i) The Rights Agent may execute and exercise any of the rights or powers hereby vested in it or perform any duty hereunder either itself or by or through its attorneys or agents, and the Rights Agent shall not be answerable or accountable for any act, default, neglect or misconduct of any such attorneys or agents or for any loss to the Company resulting from any such act, default, neglect or misconduct, provided reasonable care was exercised in the selection and continued employment thereof. (j) No provision of this Agreement shall require the Rights Agent to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder or in the exercise of its rights if there shall be reasonable grounds for believing -42- that repayment of such funds or adequate indemnification against such risk or liability is not reasonably assured to it. Section 21. CHANGE OF RIGHTS AGENT. The Rights Agent or any successor Rights Agent may resign and be discharged from its duties under this Agreement upon 30 days' notice in writing mailed to the Company and to each transfer agent of the Common Stock and Preferred Stock by registered or certified mail, and to the holders of the Right Certificates by first-class mail. The Company may remove the Rights Agent or any successor Rights Agent upon 30 days' notice in writing, mailed to the Rights Agent or successor Rights Agent, as the case may be, and to each transfer agent of the Common Stock and Preferred Stock by registered or certified mail, and to the holders of the Right Certificates by first-class mail. If the Rights Agent shall resign or be removed or shall otherwise become incapable of acting, the Company shall appoint a successor to the Rights Agent. If the Company shall fail to make such appointment within a period of 30 days after giving notice of such removal or after it has been notified in writing of such resignation or incapacity by the resigning or incapacitated Rights Agent or by the holder of a Right Certificate (who shall, with such notice, submit his Right Certificate for inspection by the Company), then the registered holder of any Right Certificate may apply to any court of competent jurisdiction for the appointment of a new Rights Agent. Any successor Rights Agent, whether appointed by the Company or by such a court, shall be a corporation organized and doing business under the laws of the United States or of any state thereof (so long as such corporation is authorized to do business as a banking institution in the states of Illinois or New York), which is authorized under such laws to exercise corporate trust powers and is subject to supervision or examination by federal or state authority and which has at the time of its appointment as Rights Agent a combined capital and surplus of at least $50 million. After -43- appointment, the successor Rights Agent shall be vested with the same powers, rights, duties and responsibilities as if it had been originally named as Rights Agent without further act or deed; but the predecessor Rights Agent shall deliver and transfer to the successor Rights Agent any property at the time held by it hereunder, and execute and deliver any further assurance, conveyance, act or deed necessary for the purpose. Not later than the effective date of any such appointment the Company shall file notice thereof in writing with the predecessor Rights Agent and each transfer agent of the Common Stock and Preferred Stock, and mail a notice thereof in writing to the registered holders of the Right Certificates. Failure to give any notice provided for in this Section 21, however, or any defect therein, shall not affect the legality or validity of the resignation or removal of the Rights Agent or the appointment of the successor Rights Agent, as the case may be. Section 22. ISSUANCE OF NEW RIGHT CERTIFICATES. Notwithstanding any of the provisions of this Agreement or of the Rights to the contrary, the Company may, at its option, issue new Right Certificates evidencing Rights in such form as may be approved by its Board to reflect any adjustment or change in the Purchase Price per share and the number or kind or class of shares or other securities or property purchasable under the Right Certificates made in accordance with the provisions of this Agreement. In addition, the Company may, if deemed necessary or appropriate by the Board, issue Right Certificates in connection with the sale of shares of Common Stock following the Distribution Date. Section 23. REDEMPTION AND TERMINATION. (a) Subject to the provisions of Section 26 hereof the Board may, at its option, at any time prior to 5:00 P.M., Chicago time, on the earlier of (i) the close of business on the thirtieth day following the Stock Acquisition Date, or (ii) the Final Expiration Date, redeem all -44- but not less than all of the then outstanding Rights at a redemption price of $.01 per Right (such redemption price being hereinafter referred to as the "Redemption Price"). Notwithstanding anything to the contrary contained in this Agreement, the Rights shall not be exercisable pursuant to Section 11(a) (ii) prior to the expiration of the Company's right of redemption hereunder. (b) Immediately upon the action of the Board ordering the redemption of the Rights, and without any further action and without any notice, the right to exercise the Rights will terminate and the only right thereafter of the holders of Rights shall be to receive the Redemption Price. Promptly after the action of the Board ordering the redemption of the Rights, the Company shall give notice of such redemption to the Rights Agent and the holders of the then outstanding Rights by mailing such notice to all such holders at their last addresses as they appear upon the registry books of the Rights Agent, or, prior to the Distribution Date, on the registry books of the transfer agent for the Common Stock. Any notice which is mailed in the manner herein provided shall be deemed given, whether or not the holder receives the notice. Each such notice of redemption will state the method by which the payment of the Redemption Price will be made. Section 24. NOTICE OF CERTAIN EVENTS. In case the Company shall propose, at any time after the Distribution Date, (a) to pay any dividend payable in stock of any class to the holders of Preferred Stock or to make any other distribution to the holders of Preferred Stock (other than a regular periodic cash dividend out of earnings or retained earnings), or (b) to offer to the holders of Preferred Stock rights or warrants to subscribe for or to purchase any additional shares of Preferred Stock or shares of stock of any class or any other securities, rights or options, or (c) to effect any reclassification of its Preferred Stock (other than a reclassification involving only the subdivision of outstanding shares of Preferred Stock), or (d) to effect any consolidation or -45- merger into or with, or to effect any sale or other transfer (or to permit one or more of its Subsidiaries to effect any sale or other transfer), in one or more transactions, of more than 50% of the assets or earning power of the Company and its Subsidiaries (taken as a whole) to, any other Person, or (e) to effect the liquidation, dissolution or winding up of the Company, then, in each such case, the Company shall give to each holder of a Right, to the extent feasible and in accordance with Section 25 hereof, a notice of such proposed action, which shall specify the record date for the purposes of such stock dividend, distribution of rights or warrants, or the date on which such reclassification, consolidation, merger, sale, transfer, liquidation, dissolution, or winding up is to take place and the date of participation therein by the holders of the Preferred Stock, if any such date is to be fixed, and such notice shall be so given in the case of any action covered by clause (a) or (b) above at least twenty (20) days prior to the record date for determining holders of the Preferred Stock for purposes of such action, and in the case of any such other action, at least twenty (20) days prior to the date of the taking of such proposed action or the date. of participation therein by the holders of the Preferred Stock, whichever shall be the earlier. In case any of the events set forth in Section 11 (a) (ii) of this Agreement shall occur, then, in any such case, (i) the Company shall as soon as practicable thereafter give to each holder of a Right Certificate, to the extent feasible and in accordance with Section 25 hereof, a notice of the occurrence of such event, which shall specify the event and the consequences of the event to holders of Rights under Section 11(a) (ii) hereof, and (ii) all references in the preceding paragraph to Preferred Stock shall be deemed thereafter to refer to Common Stock and/or, if appropriate, other securities. -46- Section 25. NOTICES. Notices or demands authorized by this Agreement to be given or made by the Rights Agent or by the holder of any Right Certificate to or on the Company shall be sufficiently given or made if sent by first-class mail, postage pre-paid, addressed (until another address is filed in writing with the Rights Agent) as follows: Rykoff-Sexton, Inc. 1050 Warrenville Road Lisle, Illinois 60532 Attention: Chairman of the Board and Chief Executive Officer Subject to the provisions of Section 21, any notice or demand authorized by this Agreement to be given or made by the Company or by the holder of any Right Certificate to or on the Rights Agent shall be sufficiently given or made if sent by first-class mail, postage prepaid, addressed (until another address is filed in writing with the Company) as follows: Chemical Bank 15821 Ventura Boulevard Suite 670 Encino, California 91436 Notices or demands authorized by this Agreement to be given or made by the Company or the Rights Agent to the holder of any Right Certificate shall be sufficiently given or made if sent by first-class mail, postage prepaid, addressed to such holder at the address of such holder as shown on the registry books of the Company. Section 26. SUPPLEMENTS AND AMENDMENTS. The Company and the Rights Agent shall from time to time, if the Company so directs, supplement or amend this Agreement without the approval of any holders of Right Certificates in order (i) to cure any ambiguity, (ii) to correct or supplement any provision contained herein which may be defective or inconsistent with any other provisions herein, (iii) to extend the period of redemption provided for in Section 23 -47- hereof, (iv) prior to the Distribution Date, to change or supplement the provisions hereunder which the Company may deem necessary or desirable to effectuate the purposes of this Agreement, or (v) following the Distribution Date, to change or supplement the provisions hereunder in any manner which the Company may deem necessary or desirable and which shall not adversely affect the interests of the holders of Right Certificates. Upon the delivery of a certificate from an appropriate officer of the Company which states that the proposed supplement or amendment is in compliance with the terms of this Section 26, the Rights Agent shall execute such supplement or amendment unless the Rights Agent shall have determined in good faith that such supplement or amendment would adversely affect its interests under this Agreement. Prior to the Distribution Date, the interests of the holders of Rights shall be deemed coincident with the interests of the holders of Common Stock. Section 27. SUCCESSORS. All the covenants and provisions of this Agreement by or for the benefit of the Company or the Rights Agent shall bind and inure to the benefit of their respective successors and assigns hereunder. Section 28. BENEFITS OF THIS AGREEMENT (a) Nothing in this Agreement shall be construed to give to any Person other than the Company, the Rights Agent and the registered holders of the Right Certificates (and, prior to the Distribution Date, registered holders of the Common Stock) any legal or equitable right, remedy or claim under this Agreement; but this Agreement shall be for the sole and exclusive benefit of the Company, the Rights Agent and the registered holders of the Right Certificates (and, prior to the Distribution Date, registered holders of the Common Stock). (b) The Board shall have the exclusive power and authority to administer this Agreement and to exercise all rights and powers specifically granted to the Board or the -48- Company or necessary or advisable in the administration of this Agreement, including without limitation the right and power to interpret the Agreement and to make all determinations deemed necessary or advisable for the administration of this Agreement. All such acts, interpretations and determinations done or made by the Board in good faith shall be final, conclusive and binding on the Company, the Rights Agent and the holders of the Rights. Accordingly, the Board shall not be liable to the holders of Rights Certificates or any other party for any determination made, action taken, or action omitted to be taken pursuant to the terms of this Agreement, if such determination, action or omitted action was made or taken in good faith. Section 29. GOVERNING LAW. This Agreement, each Right and each Right Certificate issued hereunder shall be deemed to be a contract made under the laws of the State of Delaware and for all purposes shall be governed by and construed in accordance with the laws of such state applicable to contracts to be made and performed entirely within such state. Section 30. COUNTERPARTS. This Agreement may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument. Section 31. DESCRIPTIVE HEADINGS. Descriptive headings of the several sections of this Agreement are inserted for convenience only and shall not control or affect the meaning or construction of any of the provisions hereof. Section 32. SEVERABILITY. If any portion or provision of this Agreement shall be held by a court of competent jurisdiction or other authority to be void, illegal, unenforceable or in conflict with any applicable law or regulation then in effect, the validity or enforceability of the remaining portions or provisions shall not be affected thereby. -49- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and their respective corporate seals to be hereunto affixed and attested, all as of the day and year first above written. Attest: RYKOFF-SEXTON, INC. /s/ /s/ - --------------------- --------------------- Robert J. Harter, Jr. Mark Van Stekelenburg Secretary Chairman, Chief Executive Officer and President Attest: CHEMICAL BANK By: /s/ By: /s/ ----------------------- ------------------------ Its: Its: ----------------------- ----------------------- EXHIBIT A FORM OF CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS OF SERIES A JUNIOR PARTICIPATING PREFERRED STOCK of RYKOFF-SEXTON, INC. Pursuant to Section 151 of the General Corporation Law of the State of Delaware We, Roger W. Coleman, President, and Neil I. Sell, Secretary, Rykoff-Sexton, Inc., a corporation organized and existing under the General Corporation Law of the State of Delaware, in accordance with the provisions of Section 103 thereof, DO HEREBY CERTIFY: That pursuant to the authority conferred upon the Board of Directors by the Restated Certificate of Incorporation of the said Corporation, the said Board of Directors on December 8, 1986, adopted the following resolution creating a series of fifty thousand (50,000) shares of Preferred Stock designated as Series A Junior Participating Preferred Stock: RESOLVED, that pursuant to the authority vested in the Board of Directors of this Corporation in accordance with the provisions of its Amended Certificate of Incorporation, a series of Preferred Stock of the Corporation be and it hereby is created, and that the designation and amount thereof and the voting powers, preferences and relative, participating, optional and other special rights of the shares of such series, and the qualifications, limitations or restrictions thereof are as follows: Section 1. DESIGNATION AND AMOUNT. The shares of such series shall be designated as "Series A Junior Participating Preferred Stock" and number of shares constituting such series shall be fifty thousand (50,000). Section 2. DIVIDENDS AND DISTRIBUTIONS. (A) Subject to the prior and superior rights of the holders of any shares of any series of Preferred Stock rank inj prior and superior to the shares of Series A Junior Participating Preferred Stock with respect to dividends, the holders of shares of Series A Junior Participating Preferred Stock shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose, quarterly dividends payable in cash on the last day -51- of February, May, August and November in each year (each such date being referred to herein as a "Quarterly Dividend Payment Date"), Commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Series A Junior Participating Preferred Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (a) $20 or (b) subject to the provision for adjustment hereinafter set forth, 200 times the aggregate per share amount of all cash dividends, and 200 times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions other than a dividend payable in shares of Common Stock or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), declared on the Common Stock, $.10 par value, of the Corporation (the "Common Stock") since the immediately preceding Quarterly Dividend Payment Date, or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Series A Junior Participating Preferred Stock. In the event the Corporation shall at any time declare or pay any dividend on Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the amount to which holders of shares of Series A Junior Participating Preferred Stock were entitled immediately prior to such event under clause (b) of the preceding sentence shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (B) The Corporation shall declare a dividend or distribution on the Series A Junior Participating Preferred Stock as provided in paragraph (A) above immediately after it declares a dividend or distribution on the Common Stock (other than a dividend payable in shares of Common Stock); provided that, in the event no dividend or distribution shall have been declared on the Common Stock during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend of $20 per share on the Series A Junior Participating Preferred Stock shall nevertheless be payable on such subsequent Quarterly Dividend Payment Date. (C) Dividends shall begin to accrue and be cumulative on outstanding shares of Series A Junior Participating Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares of Series A Junior Participation Preferred Stock, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series A Junior Participating Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series A Junior Participating Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share- by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Series A Junior Participating Preferred Stock entitled to receive payment of a dividend -52- or distribution declared thereon, which record date shall be no more than 30 days prior to the date fixed for the payment thereof. Section 3. VOTING RIGHTS. The holders of shares of Series A Junior Participating Preferred Stock shall have the following voting rights: (A) Subject to the provision for adjustment hereinafter set forth, each share of Series A Junior Participating Preferred Stock shall entitle the holder thereof to 200 votes on all matters submitted to a vote of the stockholders of the Corporation. In the event the Corporation shall at any time declare or pay any dividend on Common Stock payable in shares of Common Stock; or effect a subdivision or combination of the outstanding shares of Common Stock (by classification or otherwise) into a greater or lesser number of shares of Common Stock, then in each such case the number of votes per share to which holders of shares of Series A Junior Participating Preferred Stock were entitled immediately prior to such event shall be adjusted by multiplying such number by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (B) Except as otherwise provided herein or by law, the holders of shares of Series A Junior Participating Preferred Stock and the holders of shares of Common Stock shall vote together as one class on all matters submitted to a vote of stockholders of the Corporation. (C) Except as set forth herein, holders of Series A Junior Participating Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for taking any corporation action. Section 4. CERTAIN RESTRICTIONS. (A) Whenever quarterly dividends or other dividends or distributions payable on the Series A Junior Participating Preferred Stock as provided in Section 2 are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Series A Junior Participating Preferred Stock Outstanding shall have been paid in full, the Corporation shall not (i) declare or pay dividends on, make any other distributions on, or redeem or purchase or otherwise acquire for consideration any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Junior Participating Preferred Stock; (ii) declare or pay dividends on or make any other distributions on any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Junior Participating Preferred Stock, except dividends paid ratably on the Series A Junior Participating Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled; -53- (iii) redeem or purchase or otherwise acquire for consideration shares of any stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Junior Participating Preferred Stock, provided that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such parity stock in exchange for shares of any stock of the Corporation ranking junior (either as to dividends or upon dissolution, liquidation or winding up) to the Series A Junior Participating Preferred Stock; or (iv) purchase or otherwise acquire for consideration any shares of Series A Junior Participating Preferred Stock, or any shares of stock ranking on a parity with the Series A Junior Participating Preferred Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes. (B) The Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for consideration any shares of stock of the Corporation unless the Corporation could, under paragraph (A) of this Section 4, purchase or otherwise acquire such shares at such time and in such manner. Section 5. REACQUIRED SHARES. Any shares of Series A Junior Participating Preferred Stock purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and canceled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock and may be reissued as part of a new series of Preferred Stock to be created by resolution or resolutions of the Board of Directors, subject to the conditions and restrictions on issuance set forth herein. Section 6. LIQUIDATION, DISSOLUTION OR WINDING UP. Upon any voluntary liquidation, dissolution or winding up of the Corporation, no distribution shall be made (1) to the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Junior Participating Preferred Stock unless, prior thereto, the holders of shares of Series A Junior Participating Preferred Stock shall have received $200 per share, plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment, provided that the holders of shares of Series A Junior Participating Preferred Stock shall be entitled to receive an aggregate amount per share, subject to the provision for adjustment hereinafter set forth, equal to 200 times the aggregate amount to be distributed per share to holders of Common Stock, or (2) to the holders of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Junior Participating Preferred Stock, except distributions made ratably on the Series A Junior Participating Preferred Stock and all other such parity stock in proportion to the total amounts to which the holders of all such shares are entitled upon such liquidation, dissolution or winding up. In the event the Corporation shall at any time declare or pay any dividend on Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a -54- dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the aggregate amount to which holders of shares of Series A Junior Participating Preferred Stock were entitled immediately prior to such event under the proviso in clause (1) of the preceding sentence shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. Section 7. CONSOLIDATION, MERGER, ETC. In case the Corporation shall enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case the shares of Series A Junior Participating Preferred Stock shall at the same time be similarly exchanged or changed in an amount per share (subject to the provision for adjustment hereinafter set forth) equal to 200 times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is changed or exchanged. In the event the Corporation shall at any time declare or pay any dividend on Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the amount set forth in the preceding sentence with respect to the exchange or change of shares of Series A Junior Participating Preferred Stock shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. Section 8. NO REDEMPTION. The shares of Series A Junior Participating Preferred Stock shall not be redeemable. Section 9. RANKING. The Series A Junior Participating Preferred Stock shall rank junior to all other series of the Corporation's Preferred Stock as to the payment of dividends and the distribution of assets, unless the terms of any such series shall provide otherwise. Section 10. AMENDMENT. The Certificate of Incorporation of the Corporation shall not be amended in any manner which would materially alter or change the powers, preferences or special rights of the Series A Junior Participating Preferred Stock so as to affect them adversely without the affirmative vote of the holders of a majority or more of the outstanding shares of Series A Junior Participating Preferred Stock, voting Separately as a class. Section 11. FRACTIONAL SHARES. Series A Junior Participating Preferred Stock may be issued in fractions of a share which Shall entitle the holder, in proportion to such holder's fractional shares, to exercise voting rights, receive dividends, participate in liquidating distributions and to have the benefit of all other rights of holders of Series A Junior Participating Preferred Stock. -55- IN WITNESS WHEREOF, we have executed and Subscribed this Certificate and do affirm the foregoing as true under the penalties of perjury this ______ day of ________________, 1986. RYKOFF-SEXTON, INC. By ------------------------------- Roger W. Coleman, President Attest: - --------------------------------- Neil I. Sell, Secretary -56- EXHIBIT B [Form of Right Certificate] Certificate No. R- __________ Rights NOT EXERCISABLE AFTER MAY 15, 2006 OR EARLIER IF REDEEMED BY THE COMPANY. THE RIGHTS ARE SUBJECT TO REDEMPTION, AT THE OPTION OF THE COMPANY, AT $.01 PER RIGHT ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT REFERRED TO HEREIN. UNDER CERTAIN CIRCUMSTANCES, RIGHTS BENEFICIALLY OWNED BY AN ACQUIRING PERSON (AS SUCH TERM IS DEFINED IN THE RIGHTS AGREEMENT) AND ANY SUBSEQUENT HOLDER OF SUCH RIGHTS MAY BECOME NULL AND VOID. [THE RIGHTS REPRESENTED BY THIS CERTIFICATE ARE OR WERE BENEFICIALLY OWNED BY A PERSON WHO WAS OR BECAME AN ACQUIRING PERSON OR AN AFFILIATE OR ASSOCIATES OF AN ACQUIRING PERSON (AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT). ACCORDINGLY, THIS RIGHT CERTIFICATE AND THE RIGHTS REPRESENTED HEREBY MAY BECOME VOID IN THE CIRCUMSTANCES SPECIFIED IN SECTION 7(e) OF SUCH AGREEMENT.]* RIGHT CERTIFICATE This certifies that ________________________________, or registered assigns, is the registered owner of the number of Rights set forth above, each of which entitles the owner thereof, subject to the terms, provisions and conditions of the Amended and Restated Rights Agreement dated as of May 15, 1996 (the "Rights Agreement") between Rykoff-Sexton, Inc., a Delaware corporation (the "Company"), and Chemical Bank, a New York banking corporation (the "Rights Agent"), to purchase from the Company at any time after the Distribution Date (as such term is. defined in the Rights Agreement) and prior to 5:00 p.m. (Chicago time) on May 15, 2006 at the -57- office of the Rights Agent designation for such purpose, or its successors as Rights Agent, one two-hundredth of a fully paid non-assessable share of Series A Junior Participating Preferred Stock (the "Preferred Stock"), of the Company, at a purchase price of $100.00 per one two-hundredths of a share (the "Purchase Price"), upon presentation and surrender of this Right Certificate with the Form of Election to Exercise duly executed. The number of Rights evidenced by this Right Certificate (and the number of shares which may be purchased upon exercise thereof) set forth above, and the Purchase Price per share set forth above, are the number and Purchase Price as of ______________, 1996 based on the Preferred Stock as constituted at such date. If the Rights evidenced by this Right Certificate are beneficially owned by (i) an Acquiring Person or an Affiliate or Associate of any such Acquiring Person (as such terms are defined in the Rights Agreement), (ii) transferees of any such Acquiring Person, Associate or Affiliate and (iii) under certain circumstances, transferees of persons who became an Acquiring Person, Affiliate or Associate following such transfer, such Rights shall become null and void upon the occurrence of an Acquisition Event (as such term is defined in the Rights Agreement) and no holder hereof shall have any right with respect to such Rights from and after the occurrence of any such Acquisition Event. As provided in the Rights Agreement, the Purchase Price and the number and kind of shares of Preferred Stock or other securities which may be purchased upon the exercise of the Rights evidenced by this Right Certificate are subject to modification and adjustment upon the happening of certain events. -58- This Right Certificate is subject to all of the terms, provisions and conditions of the Rights Agreement, which terms, provisions and conditions are hereby incorporated herein by reference and made a part hereof and to which Rights Agreement reference is hereby made for a full description of the rights, limitations of rights, obligations, duties and immunities hereunder of the Rights Agent, the Company and the holders of the Right Certificates, which limitations or rights include the temporary suspension of the exercisability of such Rights under certain circumstances specified in such Rights Agreement. Copies of the Rights Agreement are on file at the above-mentioned office of the Rights Agent and are also available upon written request to the Rights Agent. This Right Certificate, with or without other Right Certificates, upon surrender at the office of the Rights Agent designated for such purpose, may be exchanged for another Right Certificate or Right Certificates of like tenor and date evidencing Rights entitling the holder to purchase a like aggregate number of shares of Preferred Stock as the Rights evidenced by the Right Certificate or Right Certificates surrendered shall have entitled such holder to purchase. If this Right Certificate shall be exercised in part, the holder shall be entitled to receive upon surrender hereof another Right Certificate or Right Certificates for the number of whole Rights not exercised. Subject to the provisions of the Rights Agreement, the Rights evidenced by this Certificate may be redeemed by the Company at its option at a redemption price of $.01 per Right at any time prior to the earlier of the close of business on (i) the thirtieth day following the Stock Acquisition Date and (ii) the Final Expiration Date. No fractional shares of Preferred Stock will be issued upon the exercise of any Right or Rights evidenced hereby (other than fractions which are integral multiples of one two-hundredth -59- of a share of Preferred Stock, which may, at the election of the Company, be evidenced by depositary receipts, but in lieu thereof a cash payment will be made, as provided in the Rights Agreement. No holder of this Right Certificate Shall be entitled to vote or receive dividends or be deemed for any purpose the holder of Preferred Stock or of any other securities of the Company which may at any time be issuable on the exercise hereof, nor shall anything contained in the Rights Agreement or herein be construed to confer upon the holder hereof, as such, any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to stockholders at anything or to give or withhold consent to any corporate action, or to receive notice of meetings or other actions affecting stockholders (except as provided in the Rights Agreement), or to receive dividends or subscription rights, or otherwise, until the Right or Rights evidenced by this Right Certificate shall have been exercised as provided in the Rights Agreement. This Right Certificate shall not be valid or obligatory for any purpose until it shall have been countersigned by the Rights Agent. -60- WITNESS the facsimile signature of the proper officers of the Company and its corporate seal. Dated as of _________________. ATTEST: RYKOFF-SEXTON, INC. By - ------------------------------ ---------------------------------- Secretary Title: President Countersigned CHEMICAL BANK By ------------------------ Authorized Signature -61- [Form of Reverse Side of Right Certificate] FORM OF ASSIGNMENT (To be executed by the registered holder if such holder desires to transfer the Right Certificates.) FOR VALUE RECEIVED _________________________________________ hereby sells, assigns and transfers unto _________________________________________________ (Please print name and address of transferee) this Right Certificate, together with all right, title and interest therein, and does hereby irrevocably constitute and appoint ______________________ Attorney, to transfer the within Right Certificate on the books of the within-named Company, with full power of substitution. The Undersigned hereby certifies (after due inquiry and to the best of its knowledge) by checking the appropriate boxes that: (1) this Rights Certificate [ ] is or [ ] is not being sold, assigned and transferred by or on behalf of a Person who is or was an Acquiring Person or an Affiliate or Associate of an Acquiring Person (as such terms are defined in the Rights Agreement); and (2) the undersigned [ ] did or [ ] did not -62- acquire the Rights evidenced by this Rights Certificate from any person who is, was or subsequently became an Acquiring Person or an Affiliate or Associate of an Acquiring Person. Dated: ___________________, _____. ------------------------------- Signature SIGNATURE GUARANTEED: NOTICE The signature to the foregoing Assignment must correspond to the name as written upon the face of this Right Certificate in every particular, without alteration or enlargement or any change whatsoever. -63- FORM OF ELECTION TO EXERCISE (To be executed if holder desires to exercise Rights represented by the Right Certificate.) To Rykoff-Sexton, Inc.: The undersigned hereby irrevocably elects to exercise _________________ Rights represented by this Right Certificate to purchase the shares of Preferred Stock issuable upon the exercise of the Rights (or such other securities of the Company or of any other person which may be issuable upon the exercise of the Rights) and requests that certificates for such shares be issued in the name of: Please insert Social Security or other identifying number - -------------------------------------------------------------------------------- (Please print name and address) - -------------------------------------------------------------------------------- If such number of Rights shall not be all the Rights evidenced by this Right Certificate, a new Right Certificate for the balance remaining of such Rights shall be registered in the name of and delivered to: Please insert Social Security or other identifying number - -------------------------------------------------------------------------------- (Please print name and address) - -------------------------------------------------------------------------------- The Undersigned hereby certifies (after due inquiry and to the best of its knowledge) by checking the appropriate boxes that: -64- (1) the Rights evidenced by this Rights Certificate [ ] are or [ ] are not being exercised by or on behalf of a Person who is or was an Acquiring Person or an Affiliate or Associate of an Acquiring Person (as such terms are defined in the Rights Agreement); and (2) the undersigned [ ] did or [ ] did not acquire the Rights evidenced by this Rights Certificate from any person who is, was or subsequently became an Acquiring Person or an Affiliate or Associate of an Acquiring Person. Dated: ___________________, _____. ----------------------------------- Signature (Signature must conform in all respects to name of holder as Specified on the face of this Right Certificate) Signature Guaranteed: -65- EX-10.2-5 4 EXHIBIT 10.2.5 Exhibit 10.2.5 RYKOFF-SEXTON, INC. PERFORMANCE SHARE AWARD AGREEMENT This Performance Share Award Agreement (the "Agreement") is executed by and between ___________________ (the "Participant") and Rykoff-Sexton, Inc., a Delaware corporation, (the "Company") pursuant to the Company's 1988 Stock Option and Compensation Plan (the "Plan"). The Stock Option Committee appointed pursuant to the Plan (the "Committee") has granted a performance share award to the Participant on the terms and conditions set forth below: 1. The Participant is hereby granted _______________ performance shares in accordance with the terms and conditions of this Agreement and the Plan. 2. The terms and conditions of the Plan, a copy of which has been delivered to the Participant, are hereby incorporated herein and made a part hereof by reference as if set forth in full. In the event of any conflict or inconsistency between the provisions of this Agreement and those of the Plan, the provisions of the Plan shall govern and control. 3. During the first quarter of the Company's fiscal year ending June, 1997, the Committee will establish and notify the Participant of performance objectives for the three fiscal year period ending June, 1999 (the "Performance Period"). 4. If, and to the extent, the performance objectives established by the Committee are achieved during the Performance Period, the performance shares shall be converted to an equivalent number of shares of the Company's Common Stock or, at the election of the Committee, to the cash value of such shares of Common Stock measured by the closing price of the Common Stock on the New York Stock Exchange on the date of conversion. 5. Any performance shares which are not entitled to be converted in accordance with the terms and conditions of this Agreement will be canceled. 6. Except for any transfer pursuant to the applicable laws of descent and distribution, Performance Shares may not be transferred, pledged or assigned. 7. Nothing contained herein is intended or shall be construed as conferring upon or giving to any person, firm or corporation other than the parties hereto any rights or benefits under or by reason of this Agreement. 8. Nothing contained herein shall be construed to limit or restrict the right of the Company to terminate the Participant's employment at any time, with or without cause, or to increase or decrease the Participant's compensation from the rate in existence at the time the Performance Shares were granted. 9. This Agreement embodies the entire agreement made between the parties hereto with respect to the matters covered herein and shall not be modified expect by a writing signed by the party to be charged. 10. This Agreement shall not be effective until executed by the Participant and returned to the Company. By executing this Agreement, the Participant hereby acknowledges that the Participant has read and agreed to all the terms and conditions of this Agreement. The parties have executed this Agreement as of ______________, 199_. PARTICIPANT: RYKOFF-SEXTON, INC. _____________________________________ _____________________________________ By: 2 EX-10.8-1 5 EXHIBIT 10.8.1 NORMAL OPTION AGREEMENT (MANAGEMENT STOCK OPTION PLAN) AGREEMENT made on ______________, 1996 (this "Agreement") by and between Rykoff-Sexton, Inc., a Delaware corporation (the "Company"), and (the "Optionee" or the "Employee"). WHEREAS, the Company, USF Acquisition Company, a Delaware corporation and a wholly-owned subsidiary of the Company ("Merger Sub"), and US Foodservice Inc. (f/k/a Unifax Holdings, Inc.), a Delaware corporation ("US Foodservice"), have entered into an Agreement and Plan of Merger dated February 2, 1996 (the "Merger Agreement"), pursuant to which US Foodservice has been merged with and into Merger Sub (the "Merger"); WHEREAS, WS Holdings Corporation, a Delaware corporation and a wholly-owned subsidiary of US Foodservice ("WS Holdings"), had adopted the Management Stock Option Plan of WS Holdings Corporation (as amended from time to time, the "Plan"); WHEREAS, pursuant to the Plan, the Optionee has been granted a nonqualified option on October 18, 1988 (the "Grant Date") to purchase shares of Class A Common Stock, par value $.01 per share, of WS Holdings; WHEREAS, US Foodservice has assumed the obligation of WS Holdings to issue shares upon exercise of such option and such option constituted an option to purchase (as of immediately prior to the Effective Time (as defined in the Merger Agreement) of the Merger) shares of US Foodservice Class A Common Stock, par value $.01 per share ("US Foodservice Class A Common Stock"), at an exercise price per share of $13.71 (the "Old Option"); and WHEREAS, Section 4.1(e) of the Merger Agreement provides that at the Effective Time certain outstanding options to purchase shares of US Foodservice Class A Common Stock or shares of US Foodservice Class B Common Stock, par value $.01 per share (together with US Foodservice Class A Common Stock, "US Foodservice Common Stock"), shall be assumed by the Company and shall constitute an option to acquire shares of its Common Stock, par value $.10 per share ("Stock"). 1. DEFINITIONS. Capitalized terms not otherwise defined herein shall have the meaning set forth in the Plan. 2. NUMBER OF SHARES AND OPTION PRICE. The Optionee is hereby granted a nonqualified stock option (the "Option") to purchase an aggregate of shares of Stock pursuant to the terms of this Agreement and the provisions of the Plan. The exercise price of the Option shall be $9.41 per share of Stock issuable hereunder (the "Option Price"). 3. PERIOD OF OPTION AND CONDITIONS OF EXERCISE. (a) As of the Effective Time, this Option (until terminated as hereinafter provided or as provided in the Plan) shall be immediately exercisable to the extent of 100% of the shares of Stock hereinabove specified. To the extent exercisable, this Option may be exercised in whole or in part from time to time. (b) Except as otherwise provided in the Plan, no portion of the Option shall be exercisable unless the Employee at the time of such exercise is, and at all times from the Grant Date has been, in the employ of the Company or a subsidiary. If the employment of the Employee with the Company terminates for any reason, the period during which the Employee shall be permitted to exercise the Option shall be determined as provided in Section 11 of the Plan and the Company and the Employee shall be governed by the provisions of Section 12 of the Plan. The Option shall terminate in accordance with the provisions of the Plan. 4. NON-TRANSFERABILITY OF OPTION; DEATH OF EMPLOYEE. The Option and this Agreement shall not be transferable otherwise than by will or by the laws of descent and distribution; and the Option may be exercised, during the lifetime of the Employee, only by him or her, and, in the event of the death of the Employee, only by his or her estate. 5. SPECIFIC RESTRICTIONS UPON OPTION SHARES. The Employee hereby agrees with the Company as follows: (a) The Employee shall not dispose of any shares of Stock acquired upon exercise of the Option in transactions which, in the opinion of counsel to the Company, violate the Securities Act of 1933, as amended (the "1933 Act"), or the rules and regulations thereunder, or any applicable state securities or "blue sky" laws; and further (b) No public offering (otherwise than on a national securities exchange, as defined in the Securities Exchange Act of 1934, as amended) or any shares of Stock acquired upon exercise of the Option shall be made by the Employee (or any other person) under such circumstances that he or she (or such other person) may be deemed an underwriter, as defined in the 1933 Act. The Employee further agrees that the Company shall have the authority to endorse upon the certificate or certificates representing the Shares such legends referring to the foregoing restrictions, or any other applicable restrictions, as it may deem appropriate. 6. NOTICES. Any notice to be given hereunder shall be in writing and shall be deemed given when delivered personally, sent 2 by courier or telecopy or registered or certified mail, postage prepaid, return receipt requested, addressed to the party concerned at the address indicated below or to such other address as such party may subsequently give notice of hereunder in writing: To Optionee at: To the Company at: Rykoff-Sexton, Inc. 1050 Warrenville Road Lisle, Illinois 60532-5201 Attn: Robert J. Harter, Jr. Senior Vice President, Human Resources and General Counsel Telecopy: (708) 964-0355 Any notice delivered personally or by courier under this Section 6 shall be deemed given on the date delivered and any notice sent by telecopy or registered or certified mail, postage prepaid, return receipt requested, shall be deemed given on the date telecopied or mailed. 7. FAILURE TO ENFORCE NOT A WAIVER. The failure of the Company to enforce at any time any provision of this Agreement shall in no way be construed to be a waiver of such provision or of any other provision hereof. 8. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED ACCORDING TO THE LAWS OF THE STATE OF DELAWARE. 9. PROVISIONS OF PLAN. The Option provided for herein is granted pursuant to the Plan, and the Option and this Agreement are in all respects governed by the Plan and subject to all of the terms and provisions thereof, whether such terms and provisions are incorporated in this Agreement solely by reference or are expressly cited herein. The Optionee hereby consents to the amendment and restatement of the Management Stock Option Plan of WS Holdings Corporation in the form of the Plan presented to the Optionee herewith. By signing this Agreement, the Optionee confirms that he has received a copy of the Plan and has had an opportunity to review the contents thereof. 10. OLD OPTION. This Agreement supersedes and replaces all of the Optionee's rights and benefits under the Agreement dated as of the Grant Date between WS Holdings and the Optionee, as amended (the "Prior Option Agreement"). From and after the date of this Agreement, the Prior Option Agreement and the Old Option shall terminate and be of no further force or effect and the 3 Optionee hereby waives and forever relinquishes all rights and benefits thereunder. 4 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. RYKOFF-SEXTON, INC. By: ----------------------------------------------- Mark Van Stekelenburg Chairman and Chief Executive Officer OPTIONEE -------------------------------------------------- 5 NORMAL OPTION AGREEMENT (MANAGEMENT STOCK OPTION PLAN) AGREEMENT made on ______________, 1996 (this "Agreement") by and between Rykoff-Sexton, Inc., a Delaware corporation (the "Company"), and (the "Optionee" or the "Employee"). WHEREAS, the Company, USF Acquisition Company, a Delaware corporation and a wholly-owned subsidiary of the Company ("Merger Sub"), and US Foodservice Inc. (f/k/a Unifax Holdings, Inc.), a Delaware corporation ("US Foodservice"), have entered into an Agreement and Plan of Merger dated February 2, 1996 (the "Merger Agreement"), pursuant to which US Foodservice has been merged with and into Merger Sub (the "Merger"); WHEREAS, WS Holdings Corporation, a Delaware corporation and a wholly-owned subsidiary of US Foodservice ("WS Holdings"), had adopted the Management Stock Option Plan of WS Holdings Corporation (as amended from time to time, the "Plan"); WHEREAS, pursuant to the Plan, the Optionee has been granted a nonqualified option on March 24, 1995 (the "Grant Date") to purchase shares of Class A Common Stock, par value $.01 per share, of US Foodservice ("US Foodservice Class A Common Stock"); WHEREAS, such option constituted an option to purchase (as of immediately prior to the Effective Time (as defined in the Merger Agreement) of the Merger) shares of US Foodservice Class A Common Stock, par value $.01 per share ("US Foodservice Class A Common Stock"), at an exercise price per share of $13.71 (the "Old Option"); and WHEREAS, Section 4.1(e) of the Merger Agreement provides that at the Effective Time certain outstanding options to purchase shares of US Foodservice Class A Common Stock or shares of US Foodservice Class B Common Stock, par value $.01 per share (together with US Foodservice Class A Common Stock, "US Foodservice Common Stock"), shall be assumed by the Company and shall constitute an option to acquire shares of its Common Stock, par value $.10 per share ("Stock"). 1. DEFINITIONS. Capitalized terms not otherwise defined herein shall have the meaning set forth in the Plan. 2. NUMBER OF SHARES AND OPTION PRICE. The Optionee is hereby granted a nonqualified stock option (the "Option") to purchase an aggregate of shares of Stock pursuant to the terms of this Agreement and the provisions of the Plan. The exercise price of the Option shall be $9.41 per share of Stock issuable hereunder (the "Option Price"). 3. PERIOD OF OPTION AND CONDITIONS OF EXERCISE. (a) As of the Effective Time, this Option (until terminated as hereinafter provided or as provided in the Plan) shall be immediately exercisable to the extent of 100% of the shares of Stock hereinabove specified. To the extent exercisable, this Option may be exercised in whole or in part from time to time. (b) Except as otherwise provided in the Plan, no portion of the Option shall be exercisable unless the Employee at the time of such exercise is, and at all times from the Grant Date has been, in the employ of the Company or a subsidiary. If the employment of the Employee with the Company terminates for any reason, the period during which the Employee shall be permitted to exercise the Option shall be determined as provided in Section 11 of the Plan and the Company and the Employee shall be governed by the provisions of Section 12 of the Plan. The Option shall terminate in accordance with the provisions of the Plan. 4. NON-TRANSFERABILITY OF OPTION; DEATH OF EMPLOYEE. The Option and this Agreement shall not be transferable otherwise than by will or by the laws of descent and distribution; and the Option may be exercised, during the lifetime of the Employee, only by him or her, and, in the event of the death of the Employee, only by his or her estate. 5. SPECIFIC RESTRICTIONS UPON OPTION SHARES. The Employee hereby agrees with the Company as follows: (a) The Employee shall not dispose of any shares of Stock acquired upon exercise of the Option in transactions which, in the opinion of counsel to the Company, violate the Securities Act of 1933, as amended (the "1933 Act"), or the rules and regulations thereunder, or any applicable state securities or "blue sky" laws; and further (b) No public offering (otherwise than on a national securities exchange, as defined in the Securities Exchange Act of 1934, as amended) or any shares of Stock acquired upon exercise of the Option shall be made by the Employee (or any other person) under such circumstances that he or she (or such other person) may be deemed an underwriter, as defined in the 1933 Act. The Employee further agrees that the Company shall have the authority to endorse upon the certificate or certificates representing the Shares such legends referring to the foregoing restrictions, or any other applicable restrictions, as it may deem appropriate. 2 6. NOTICES. Any notice to be given hereunder shall be in writing and shall be deemed given when delivered personally, sent by courier or telecopy or registered or certified mail, postage prepaid, return receipt requested, addressed to the party concerned at the address indicated below or to such other address as such party may subsequently give notice of hereunder in writing: To Optionee at: To the Company at: Rykoff-Sexton, Inc. 1050 Warrenville Road Lisle, Illinois 60532-5201 Attn: Robert J. Harter, Jr. Senior Vice President, Human Resources and General Counsel Telecopy: (708) 964-0355 Any notice delivered personally or by courier under this Section 6 shall be deemed given on the date delivered and any notice sent by telecopy or registered or certified mail, postage prepaid, return receipt requested, shall be deemed given on the date telecopied or mailed. 7. FAILURE TO ENFORCE NOT A WAIVER. The failure of the Company to enforce at any time any provision of this Agreement shall in no way be construed to be a waiver of such provision or of any other provision hereof. 8. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED ACCORDING TO THE LAWS OF THE STATE OF DELAWARE. 9. PROVISIONS OF PLAN. The Option provided for herein is granted pursuant to the Plan, and the Option and this Agreement are in all respects governed by the Plan and subject to all of the terms and provisions thereof, whether such terms and provisions are incorporated in this Agreement solely by reference or are expressly cited herein. The Optionee hereby consents to the amendment and restatement of the Management Stock Option Plan of WS Holdings Corporation in the form of the Plan presented to the Optionee herewith. By signing this Agreement, the Optionee confirms that he has received a copy of the Plan and has had an opportunity to review the contents thereof. 10. OLD OPTION. This Agreement supersedes and replaces all of the Optionee's rights and benefits under the Agreement dated as of the Grant Date between US Foodservice (f/k/a Unifax Holdings, Inc.) and the Optionee, as amended (the "Prior Option 3 Agreement"). From and after the date of this Agreement, the Prior Option Agreement and the Old Option shall terminate and be of no further force or effect and the Optionee hereby waives and forever relinquishes all rights and benefits thereunder. 4 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. RYKOFF-SEXTON, INC. By: ----------------------------------------------- Mark Van Stekelenburg Chairman and Chief Executive Officer OPTIONEE -------------------------------------------------- EX-10.8-2 6 EXHIBIT 10.8.2 PERFORMANCE OPTION AGREEMENT (MANAGEMENT STOCK OPTION PLAN) AGREEMENT made on ______________, 1996 (this "Agreement") by and between Rykoff-Sexton, Inc., a Delaware corporation (the "Company"), and (the "Optionee" or the "Employee"). WHEREAS, the Company, USF Acquisition Company, a Delaware corporation and a wholly-owned subsidiary of the Company ("Merger Sub"), and US Foodservice Inc. (f/k/a Unifax Holdings, Inc.), a Delaware corporation ("US Foodservice"), have entered into an Agreement and Plan of Merger dated February 2, 1996 (the "Merger Agreement"), pursuant to which US Foodservice has been merged with and into Merger Sub (the "Merger"); WHEREAS, WS Holdings Corporation, a Delaware corporation and a wholly-owned subsidiary of US Foodservice ("WS Holdings"), had adopted the Management Stock Option Plan of WS Holdings Corporation (as amended from time to time, the "Plan"); WHEREAS, pursuant to the Plan, the Optionee has been granted a nonqualified option on October 18, 1988 (the "Grant Date") to purchase shares of Class A Common Stock, par value $.01 per share, of WS Holdings; WHEREAS, US Foodservice has assumed the obligation of WS Holdings to issue shares upon exercise of such option and such option constituted an option to purchase (as of immediately prior to the Effective Time (as defined in the Merger Agreement) of the Merger) shares of US Foodservice Class A Common Stock, par value $.01 per share ("US Foodservice Class A Common Stock"), at an exercise price per share of $13.71 (the "Old Option"); and WHEREAS, Section 4.1(e) of the Merger Agreement provides that at the Effective Time certain outstanding options to purchase shares of US Foodservice Class A Common Stock or shares of US Foodservice Class B Common Stock, par value $.01 per share (together with US Foodservice Class A Common Stock, "US Foodservice Common Stock"), shall be assumed by the Company and shall constitute an option to acquire shares of its Common Stock, par value $.10 per share ("Stock"). 1. DEFINITIONS. Capitalized terms not otherwise defined herein shall have the meaning set forth in the Plan. 2. NUMBER OF SHARES AND OPTION PRICE. The Optionee is hereby granted a nonqualified stock option (the "Option") to purchase an aggregate of shares of Stock pursuant to the terms of this Agreement and the provisions of the Plan. The exercise price of the Option shall be $9.41 per share of Stock issuable hereunder (the "Option Price"). 3. CONDITIONS TO EXERCISABILITY AND PERIOD OF OPTION. (a) This Option (until terminated as hereinafter provided or as provided in the Plan) shall be exercisable to the extent of 100% of the shares of Stock hereinabove specified after the Optionee shall have been in the continuous employ of US Foodservice, Merger Sub, the Company or any Subsidiary (as defined in the Plan) of US Foodservice, Merger Sub or the Company for one full year from the Effective Time. To the extent exercisable, this Option may be exercised in whole or in part from time to time. (b) Unless the Option is previously terminated pursuant to this Agreement, the term of the Option and of this Agreement shall terminate upon the expiration of ten years and one day from the Grant Date. Upon the termination of the Option, all rights of the Employee hereunder shall cease. (c) The Option may be exercised only to purchase whole and fractional shares of Stock. (d) Except as otherwise provided in the Plan, no portion of the Option shall be exercisable unless the Employee at the time of such exercise is, and at all times from the Grant Date has been, in the employ of Rykoff-Sexton, Foodservice or a Subsidiary. (e) If the employment of the Employee with Rykoff-Sexton, Foodservice or a Subsidiary terminates for any reason, the period during which the Employee shall be permitted to exercise the Option shall be determined as provided in Section 11 of the Plan and Rykoff-Sexton and the Employee shall be governed by the provisions of Section 12 of the Plan. 4. NON-TRANSFERABILITY OF OPTION; DEATH OF EMPLOYEE. The Option and this Agreement shall not be transferable otherwise than by will or by the laws of descent and distribution; and the Option may be exercised, during the lifetime of the Employee, only by him or her, and, in the event of the death of the Employee, only by his or her estate. 5. EXERCISE OF OPTION. The Option shall be exercised in the following manner or otherwise in accordance with the Plan: the Employee or his or her estate shall deliver to the Company written notice, substantially in the form set forth as Exhibit A hereto, specifying the number of shares of Stock which he elects to purchase and a date, not more than ninety (90) days after the date of such notice, upon which such shares of Stock shall be purchased and payment therefor shall be made. Upon delivery to the Company on such date of cash or certified or bank cashier's check payable to the order of the Company, in an amount equal to the product of the number of shares of Stock specified in such notice and the Option Price, together with payment, by cash or certified or bank cashier's check payable to the order of the Company, of such amount as the Company deems necessary to satisfy its liability to withhold federal, state or local income or other taxes incurred by reason of the exercise or the transfer of 2 shares of Stock thereupon, the shares of Stock so purchased shall thereupon be promptly delivered to the Employee or his or her estate. The Employee and his or her estate will not be deemed to be a holder of any shares of Stock pursuant to exercise of the Option until the date of the issuance of a stock certificate to him or her or his or her estate for such shares. The Employee may specify in any exercise notice that only shares of Stock shall be issued and that if the Company may not then issue shares of Stock the effectiveness of such exercise shall be delayed until such time as the Company may issue shares. 6. SPECIFIC RESTRICTIONS UPON OPTION SHARES. The Employee hereby agrees with the Company as follows: (a) The Employee shall not dispose of any shares of Stock acquired upon exercise of the Option in transactions which, in the opinion of counsel to the Company, violate the Securities Act of 1933, as amended (the "1933 Act"), or the rules and regulations thereunder, or any applicable state securities or "blue sky" laws; and further (b) No public offering (otherwise than on a national securities exchange, as defined in the Securities Exchange Act of 1934, as amended) of any shares of Stock acquired upon exercise of the Option shall be made by the Employee (or any other person) under such circumstances that he or she (or such other person) may be deemed an underwriter, as defined in the 1933 Act. The Employee further agrees that the Company shall have the authority to endorse upon the certificate or certificates representing the shares of Stock acquired upon exercise of the Option such legends referring to the foregoing restrictions, or any other applicable restrictions, as it may deem appropriate. 7. NOTICES. Any notice to be given hereunder shall be in writing and shall be deemed given when delivered personally, sent by courier or telecopy or registered or certified mail, postage prepaid, return receipt requested, addressed to the party concerned at the address indicated below or to such other address as such party may subsequently give notice of hereunder in writing: To Optionee at: 3 To the Company at: Rykoff-Sexton, Inc. 1050 Warrenville Road Lisle, Illinois 60532-5201 Attn: Robert J. Harter, Jr. Senior Vice President, Human Resources and General Counsel Telecopy: (708) 964-0355 Any notice delivered personally or by courier under this Section 7 shall be deemed given on the date delivered and any notice sent by telecopy or registered or certified mail, postage prepaid, return receipt requested, shall be deemed given on the date telecopied or mailed. 8. FAILURE TO ENFORCE NOT A WAIVER. The failure of the Company to enforce at any time any provision of this Agreement shall in no way be construed to be a waiver of such provision or of any other provision hereof. 9. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED ACCORDING TO THE LAWS OF THE STATE OF DELAWARE. 10. PROVISIONS OF PLAN. The Option provided for herein is granted pursuant to the Plan, and the Option and this Agreement are in all respects governed by the Plan and subject to all of the terms and provisions thereof, whether such terms and provisions are incorporated in this Agreement solely by reference or are expressly cited herein. The Optionee hereby consents to the amendment and restatement of the Management Stock Option Plan of WS Holdings Corporation in the form of the Plan presented to the Optionee herewith. By signing this Agreement, the Optionee confirms that he has received a copy of the Plan and has had an opportunity to review the contents thereof. 11. OLD OPTION. This Agreement supersedes and replaces all of the Optionee's rights and benefits under the Agreement dated as of the Grant Date between WS Holdings and the Optionee, as amended (the "Prior Option Agreement"). From and after the date of this Agreement, the Prior Option Agreement and the Old Option shall terminate and be of no further force or effect and the Optionee hereby waives and forever relinquishes all rights and benefits thereunder. 4 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. RYKOFF-SEXTON, INC. By: ------------------------------------ Mark Van Stekelenburg Chairman and Chief Executive Officer OPTIONEE --------------------------------------- 5 EXHIBIT A Date: -------------------- Rykoff-Sexton, Inc. 1050 Warrenville Road Lisle, Illinois 60532 Attention: Robert J. Harter, Jr. Senior Vice President, Human Resources and General Counsel Re: EXERCISE OF OPTION Dear Sirs: Pursuant to the terms of the Performance Option Agreement (the "Agreement") between us dated ______________, in which you have granted to me an option to purchase a certain number of the shares of common stock, par value $.10 per share (the "Shares"), of Rykoff-Sexton, Inc. ("Rykoff-Sexton") on certain terms and conditions, I hereby give notice that I elect to exercise such option to the extent of ___________ Shares at $_____ per Share. In full payment of the option price for such Shares, as provided in the Agreement, I agree to deliver on _______________ (the "Closing Date") a certified or bank cashier's check to the order of Rykoff-Sexton or cash, in each case, in the amount of $_________ for such exercise. I agree to pay an additional amount equal to any withholding obligation Rykoff-Sexton may have as a result of this exercise. I covenant and agree that I shall not dispose of any Shares acquired by exercise of the option in any transaction or transactions which, in the option of counsel to Rykoff-Sexton, may violate the Securities Act of 1933, as amended (the "1933 Act"), or the rules and regulations thereunder or any applicable state securities or "blue sky" laws. I further covenant and agree that no public offering (otherwise than on a national securities exchange, as defined in the Securities Act of 1934, as amended) of any Shares acquired by exercise of the option will be made by me or by any successor under such circumstances that I or such successor may be deemed an underwriter, as defined in the 1933 Act. I understand that the Company may endorse upon the certificate or certificates representing the Shares acquired upon exercise of the option such legends referring to the foregoing restrictions, or any other applicable restrictions, as it may deem appropriate. Very truly yours, ---------------------------------------- (Signature) ---------------------------------------- (Print Name) ---------------------------------------- ---------------------------------------- ---------------------------------------- (Address) PERFORMANCE OPTION AGREEMENT (MANAGEMENT STOCK OPTION PLAN) AGREEMENT made on ______________, 1996 (this "Agreement") by and between Rykoff-Sexton, Inc., a Delaware corporation (the "Company"), and (the "Optionee" or the "Employee"). WHEREAS, the Company, USF Acquisition Company, a Delaware corporation and a wholly-owned subsidiary of the Company ("Merger Sub"), and US Foodservice Inc. (f/k/a Unifax Holdings, Inc.), a Delaware corporation ("US Foodservice"), have entered into an Agreement and Plan of Merger dated February 2, 1996 (the "Merger Agreement"), pursuant to which US Foodservice has been merged with and into Merger Sub (the "Merger"); WHEREAS, WS Holdings Corporation, a Delaware corporation and a wholly-owned subsidiary of US Foodservice ("WS Holdings"), had adopted the Management Stock Option Plan of WS Holdings Corporation (as amended from time to time, the "Plan"); WHEREAS, pursuant to the Plan, the Optionee has been granted a nonqualified option on March 24, 1995 (the "Grant Date") to purchase shares of Class A Common Stock, par value $.01 per share, of US Foodservice ("US Foodservice Class A Common Stock"); WHEREAS, such option constituted an option to purchase (as of immediately prior to the Effective Time (as defined in the Merger Agreement) of the Merger) shares of US Foodservice Class A Common Stock, at an exercise price per share of $13.71 (the "Old Option"); and WHEREAS, Section 4.1(e) of the Merger Agreement provides that at the Effective Time certain outstanding options to purchase shares of US Foodservice Class A Common Stock or shares of US Foodservice Class B Common Stock, par value $.01 per share (together with US Foodservice Class A Common Stock, "US Foodservice Common Stock"), shall be assumed by the Company and shall constitute an option to acquire shares of its Common Stock, par value $.10 per share ("Stock"). 1. DEFINITIONS. Capitalized terms not otherwise defined herein shall have the meaning set forth in the Plan. 2. NUMBER OF SHARES AND OPTION PRICE. The Optionee is hereby granted a nonqualified stock option (the "Option") to purchase an aggregate of shares of Stock pursuant to the terms of this Agreement and the provisions of the Plan. The exercise price of the Option shall be $9.41 per share of Stock issuable hereunder (the "Option Price"). 3. CONDITIONS TO EXERCISABILITY AND PERIOD OF OPTION. (a) This Option (until terminated as hereinafter provided or as provided in the Plan) shall be exercisable to the extent of 100% of the shares of Stock hereinabove specified after the Optionee shall have been in the continuous employ of US Foodservice, Merger Sub, the Company or any Subsidiary (as defined in the Plan) of US Foodservice, Merger Sub or the Company for one full year from the Effective Time. To the extent exercisable, this Option may be exercised in whole or in part from time to time. (b) Unless the Option is previously terminated pursuant to this Agreement, the term of the Option and of this Agreement shall terminate upon the expiration of ten years and one day from the Grant Date. Upon the termination of the Option, all rights of the Employee hereunder shall cease. (c) The Option may be exercised only to purchase whole and fractional shares of Stock. (d) Except as otherwise provided in the Plan, no portion of the Option shall be exercisable unless the Employee at the time of such exercise is, and at all times from the Grant Date has been, in the employ of Rykoff-Sexton, Foodservice or a Subsidiary. (e) If the employment of the Employee with Rykoff-Sexton, Foodservice or a Subsidiary terminates for any reason, the period during which the Employee shall be permitted to exercise the Option shall be determined as provided in Section 11 of the Plan and Rykoff-Sexton and the Employee shall be governed by the provisions of Section 12 of the Plan. 4. NON-TRANSFERABILITY OF OPTION; DEATH OF EMPLOYEE. The Option and this Agreement shall not be transferable otherwise than by will or by the laws of descent and distribution; and the Option may be exercised, during the lifetime of the Employee, only by him or her, and, in the event of the death of the Employee, only by his or her estate. 5. EXERCISE OF OPTION. The Option shall be exercised in the following manner or otherwise in accordance with the Plan: the Employee or his or her estate shall deliver to the Company written notice, substantially in the form set forth as Exhibit A hereto, specifying the number of shares of Stock which he elects to purchase and a date, not more than ninety (90) days after the date of such notice, upon which such shares of Stock shall be purchased and payment therefor shall be made. Upon delivery to the Company on such date of cash or certified or bank cashier's check payable to the order of the Company, in an amount equal to the product of the number of shares of Stock specified in such notice and the Option Price, together with payment, by cash or certified or bank cashier's check payable to the order of the Company, of such amount as the Company deems necessary to satisfy its liability to withhold federal, state or local income or other taxes incurred by reason of the exercise or the transfer of shares of Stock thereupon, the shares of Stock so purchased shall thereupon be promptly delivered to the Employee or his or her 2 estate. The Employee and his or her estate will not be deemed to be a holder of any shares of Stock pursuant to exercise of the Option until the date of the issuance of a stock certificate to him or her or his or her estate for such shares. The Employee may specify in any exercise notice that only shares of Stock shall be issued and that if the Company may not then issue shares of Stock the effectiveness of such exercise shall be delayed until such time as the Company may issue shares. 6. SPECIFIC RESTRICTIONS UPON OPTION SHARES. The Employee hereby agrees with the Company as follows: (a) The Employee shall not dispose of any shares of Stock acquired upon exercise of the Option in transactions which, in the opinion of counsel to the Company, violate the Securities Act of 1933, as amended (the "1933 Act"), or the rules and regulations thereunder, or any applicable state securities or "blue sky" laws; and further (b) No public offering (otherwise than on a national securities exchange, as defined in the Securities Exchange Act of 1934, as amended) of any shares of Stock acquired upon exercise of the Option shall be made by the Employee (or any other person) under such circumstances that he or she (or such other person) may be deemed an underwriter, as defined in the 1933 Act. The Employee further agrees that the Company shall have the authority to endorse upon the certificate or certificates representing the shares of Stock acquired upon exercise of the Option such legends referring to the foregoing restrictions, or any other applicable restrictions, as it may deem appropriate. 7. NOTICES. Any notice to be given hereunder shall be in writing and shall be deemed given when delivered personally, sent by courier or telecopy or registered or certified mail, postage prepaid, return receipt requested, addressed to the party concerned at the address indicated below or to such other address as such party may subsequently give notice of hereunder in writing: To Optionee at: 3 To the Company at: Rykoff-Sexton, Inc. 1050 Warrenville Road Lisle, Illinois 60532-5201 Attn: Robert J. Harter, Jr. Senior Vice President, Human Resources and General Counsel Telecopy: (708) 964-0355 Any notice delivered personally or by courier under this Section 7 shall be deemed given on the date delivered and any notice sent by telecopy or registered or certified mail, postage prepaid, return receipt requested, shall be deemed given on the date telecopied or mailed. 8. FAILURE TO ENFORCE NOT A WAIVER. The failure of the Company to enforce at any time any provision of this Agreement shall in no way be construed to be a waiver of such provision or of any other provision hereof. 9. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED ACCORDING TO THE LAWS OF THE STATE OF DELAWARE. 10. PROVISIONS OF PLAN. The Option provided for herein is granted pursuant to the Plan, and the Option and this Agreement are in all respects governed by the Plan and subject to all of the terms and provisions thereof, whether such terms and provisions are incorporated in this Agreement solely by reference or are expressly cited herein. The Optionee hereby consents to the amendment and restatement of the Management Stock Option Plan of WS Holdings Corporation in the form of the Plan presented to the Optionee herewith. By signing this Agreement, the Optionee confirms that he has received a copy of the Plan and has had an opportunity to review the contents thereof. 11. OLD OPTION. This Agreement supersedes and replaces all of the Optionee's rights and benefits under the Agreement dated as of the Grant Date between US Foodservice (f/k/a Unifax Holdings, Inc.) and the Optionee, as amended (the "Prior Option Agreement"). From and after the date of this Agreement, the Prior Option Agreement and the Old Option shall terminate and be of no further force or effect and the Optionee hereby waives and forever relinquishes all rights and benefits thereunder. 4 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. RYKOFF-SEXTON, INC. By: ------------------------------------ Mark Van Stekelenburg Chairman and Chief Executive Officer OPTIONEE --------------------------------------- 5 EXHIBIT A Date: -------------------- Rykoff-Sexton, Inc. 1050 Warrenville Road Lisle, Illinois 60532 Attention: Robert J. Harter, Jr. Senior Vice President, Human Resources and General Counsel Re: EXERCISE OF OPTION Dear Sirs: Pursuant to the terms of the Performance Option Agreement (the "Agreement") between us dated ______________, in which you have granted to me an option to purchase a certain number of the shares of common stock, par value $.10 per share (the "Shares"), of Rykoff-Sexton, Inc. ("Rykoff-Sexton") on certain terms and conditions, I hereby give notice that I elect to exercise such option to the extent of ___________ Shares at $_____ per Share. In full payment of the option price for such Shares, as provided in the Agreement, I agree to deliver on _______________ (the "Closing Date") a certified or bank cashier's check to the order of Rykoff-Sexton or cash, in each case, in the amount of $_________ for such exercise. I agree to pay an additional amount equal to any withholding obligation Rykoff-Sexton may have as a result of this exercise. I covenant and agree that I shall not dispose of any Shares acquired by exercise of the option in any transaction or transactions which, in the option of counsel to Rykoff-Sexton, may violate the Securities Act of 1933, as amended (the "1933 Act"), or the rules and regulations thereunder or any applicable state securities or "blue sky" laws. I further covenant and agree that no public offering (otherwise than on a national securities exchange, as defined in the Securities Act of 1934, as amended) of any Shares acquired by exercise of the option will be made by me or by any successor under such circumstances that I or such successor may be deemed an underwriter, as defined in the 1933 Act. I understand that the Company may endorse upon the certificate or certificates representing the Shares acquired upon exercise of the option such legends referring to the foregoing restrictions, or any other applicable restrictions, as it may deem appropriate. Very truly yours, ---------------------------------------- (Signature) ---------------------------------------- (Print Name) ---------------------------------------- ---------------------------------------- ---------------------------------------- (Address) EX-10.9-1 7 EXHIBIT 10.9.1 NORMAL OPTION AGREEMENT (US FOODSERVICE 1992 STOCK OPTION PLAN) AGREEMENT made on ______________, 1996 (this "Agreement") by and between Rykoff-Sexton, Inc., a Delaware corporation (the "Company"), and (the "Optionee"). WHEREAS, the Company, USF Acquisition Corporation, a Delaware corporation and a wholly-owned subsidiary of the Company ("Merger Sub"), and US Foodservice Inc. (f/k/a Unifax Holdings, Inc.), a Delaware corporation ("US Foodservice"), have entered into an Agreement and Plan of Merger dated February 2, 1996 (the "Merger Agreement"), pursuant to which US Foodservice has been merged with and into Merger Sub (the "Merger"); WHEREAS, US Foodservice has adopted the US Foodservice 1992 Stock Option Plan (as amended from time to time, the "Plan") and pursuant to the Plan granted the Optionee a nonqualified option on September 4, 1992 (the "Grant Date") to purchase (as of immediately prior to the Effective Time (as defined in the Merger Agreement) of the Merger) shares of US Foodservice Class A Common Stock, par value $.01 per share ("US Foodservice Class A Common Stock"), at an exercise price per share of $.05 (the "USF Option"); and WHEREAS, Section 4.1(e) of the Merger Agreement provides that at the Effective Time certain outstanding options to purchase shares of US Foodservice Class A Common Stock or shares of US Foodservice Class B Common Stock, par value $.01 per share (together with US Foodservice Class A Common Stock, "US Foodservice Common Stock") shall be assumed by the Company and shall constitute an option to acquire shares of its Common Stock, par value $.10 per share ("Stock"). NOW, THEREFORE, the parties hereto agree as follows: 1. DEFINITIONS. Capitalized terms not otherwise defined herein shall have the meaning set forth in the Plan. 2. GRANT OF THE OPTION. The Optionee is hereby granted a nonqualified stock option (the "Option") to purchase an aggregate of shares of Stock pursuant to the terms of this Agreement and the provisions of the Plan. It is intended that the Option will not qualify as an "incentive stock option" within the meaning of Section 422 of the Code. 3. OPTION PRICE. The exercise price of the Option shall be $.10 per share of Stock issuable hereunder; PROVIDED, HOWEVER, that if, at the time of exercise, the Company is holding Stock as treasury shares that are not reserved for any other purpose, the exercise price of the Option (or portion thereof being exercised) shall be $.03 per share of such treasury stock available at the time of exercise and issued upon exercise of the Option. 4. CONDITIONS TO EXERCISE. (a) As of the Effective Time, this Option (until terminated as hereinafter provided or as provided in the Plan) shall be immediately exercisable to the extent of 100% of the shares of Stock hereinabove specified. To the extent exercisable, this Option may be exercised in whole or in part from time to time. (b) If (x) the employment of an Optionee that is an Employee terminates due to an Involuntary Termination with Cause at any time or Voluntary Termination without Good Reason at any time prior to the Option otherwise becoming exercisable under Section 4(a) hereof, or, in the case of an Optionee with a Consulting Agreement, termination of the Optionee's Consulting Agreement with cause (as provided therein) or by the Optionee voluntarily without cause (as provided therein) or (y) an Optionee, if such Optionee is an Eligible Director, ceases to be a director of the Company or a Subsidiary due to his removal for cause or resignation as a director under circumstances that would permit his removal for cause, then the Option shall terminate immediately and may not be exercised, for cash or Stock, to any extent. 5. PERIOD OF OPTION. Except as otherwise provided in this Agreement, the Option shall expire ten years from the Grant Date or, if earlier, pursuant to the provisions of Section 11 of the Plan. 6. EXERCISE OF OPTION. (a) Except as otherwise provided in this Agreement, the Option shall be exercised as provided in the Plan. (b) The Company may, in its discretion, require that the Optionee pay to the Company, at the time of exercise of any portion of the Option, any such additional amount as the Company deems necessary to satisfy its liability to withhold federal, state or local income tax or any other taxes incurred by reason of the exercise or the transfer of shares of Stock thereupon. (c) If the Plan or any law, regulation or interpretation requires the Company to take any action regarding the Stock, before the Company issues certificates for the Stock being purchased, the Company may delay delivering the certificates for the Stock for the period necessary to take such action; PROVIDED, HOWEVER, that all rights hereunder and under the Plan enjoyed by the Optionee on and as of the date on which such certificates would have been issued but for such delay shall be preserved and shall not be altered, reduced or adversely affected by any such delay; PROVIDED, FURTHER, HOWEVER, that the foregoing proviso shall not be construed to create, add to or supplement any rights not otherwise enjoyed by the Optionee on and as of such date. The certificate or certificates representing the Stock acquired pursuant to the Option may bear a 1 legend restricting the transfer of such Stock, and the Company may impose stop transfer instructions to implement such restrictions, if applicable. (d) The Optionee will not be deemed to be a holder of any shares of Stock pursuant to exercise of the Option until the date of the issuance of a stock certificate to him for such shares of Stock and until the shares of Stock are paid for in full. (e) Upon the circumstances set out in the Plan the Company may elect to pay the Spread in lieu of issuing shares of Stock. 7. REPRESENTATIONS. (a) The Company represents and warrants that (i) this Agreement has been authorized by all necessary corporate action of the Company and is a valid and binding agreement of the Company enforceable against it in accordance with its terms and (ii) upon issuance of certificates for any shares of Stock against delivery of full payment therefor, all such shares will be, at the time of such issuance, duly authorized, validly issued and fully paid and nonassessable shares of the capital stock of the Company, and, upon delivery of such certificates to the Optionee, the Optionee will acquire good, valid and marketable title to such shares free and clear of any adverse lien, claim or other restriction, other than the restrictions imposed by applicable law and any lien or encumbrance created by the Optionee. (b) The Optionee represents and warrants that he or she is not a party to any agreement or instrument which would prevent him or her from entering into or performing his duties in any way under this Agreement. 8. ENTIRE AGREEMENT. This Agreement contains all the understandings between the parties hereto pertaining to the matters referred to herein, and supersedes all undertakings and agreements, whether oral or in writing, previously entered into by them with respect thereto. The Optionee represents that, in executing this Agreement, he does not rely and has not relied upon any representation or statement not set forth herein made by the Company with regard to the subject matter, bases or effect of this Agreement or otherwise. 9. AMENDMENT OR MODIFICATION, WAIVER. No provision of this Agreement may be amended or waived unless such amendment or waiver is agreed to in writing and signed by the Optionee and by a duly authorized officer of the Company or US Foodservice. No waiver by any party hereto of any breach by another party hereto of any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of a similar or dissimilar condition or provision at the same time, any prior time or any subsequent time. 2 10. NOTICES. Any notice to be given hereunder shall be in writing and shall be deemed given when delivered personally, sent by courier or telecopy or registered or certified mail, postage prepaid, return receipt requested, addressed to the party concerned at the address indicated below or to such other address as such party may subsequently give notice of hereunder in writing: To the Optionee at: To the Company at: Rykoff-Sexton, Inc. 1050 Warrenville Road Lisle, Illinois 60532-5201 Attn: Robert J. Harter, Jr. Senior Vice President, Human Resources and General Counsel Telecopy: (708) 964-0355 Any notice delivered personally or by courier under this Section 10 shall be deemed given on the date delivered and any notice sent by telecopy or registered or certified mail, postage prepaid, return receipt requested, shall be deemed given on the date telecopied or mailed. 11. SEVERABILITY. If any provision of this Agreement or the application of any such provision to any party or circumstances shall be determined by any court of competent jurisdiction to be invalid and unenforceable to any extent, the remainder of this Agreement or the application of such provision to such person or circumstances other than those to which it is so determined to be invalid and unenforceable shall not be affected thereby, and each provision hereof shall be validated and shall be enforced to the fullest extent permitted by law. 12. SURVIVORSHIP. The respective rights and obligations of the parties hereunder shall survive any termination of this Agreement to the extent necessary to the intended preservation of such rights and obligations. 13. GOVERNING LAW. This Agreement will be governed by and construed in accordance with the laws of the State of Delaware, without regard to its conflicts of laws principles. 14. HEADINGS. All descriptive headings of sections and paragraphs in this Agreement are intended solely for convenience, and no provision of this Agreement is to be construed by reference to the heading of any section or paragraph. 3 15. CONSTRUCTION. This Agreement is made under and subject to the provisions of the Plan, and all of the provisions of the Plan are hereby incorporated herein as provisions of this Agreement. If there is a conflict between the provisions of this Agreement and the provisions of the Plan, the provisions of the Plan will govern. The Optionee hereby consents to the amendment and restatement of the US Foodservice 1992 Stock Option Plan in the form of the Plan presented to the Optionee herewith. By signing this Agreement, the Optionee confirms that he has received a copy of the Plan and has had an opportunity to review the contents thereof. 16. COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 17. USF OPTION. This Agreement supersedes and replaces all of the Optionee's rights and benefits under the Agreement dated as of the Grant Date between US Foodservice (f/k/a Unifax Holdings, Inc.) and the Optionee (the "Prior Option Agreement"). From and after the date of this Agreement, the Prior Option Agreement and the USF Option shall terminate and be of no further force or effect and the Optionee hereby waives and forever relinquishes all rights and benefits thereunder. 4 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. RYKOFF-SEXTON, INC. By: ------------------------------------ Mark Van Stekelenburg Chairman and Chief Executive Officer OPTIONEE --------------------------------------- 5 NORMAL OPTION AGREEMENT (US FOODSERVICE 1992 STOCK OPTION PLAN) AGREEMENT made on ______________, 1996 (this "Agreement") by and between Rykoff-Sexton, Inc., a Delaware corporation (the "Company"), and (the "Optionee"). WHEREAS, the Company, USF Acquisition Corporation, a Delaware corporation and a wholly-owned subsidiary of the Company ("Merger Sub"), and US Foodservice Inc. (f/k/a Unifax Holdings, Inc.), a Delaware corporation ("US Foodservice"), have entered into an Agreement and Plan of Merger dated February 2, 1996 (the "Merger Agreement"), pursuant to which US Foodservice has been merged with and into Merger Sub (the "Merger"); WHEREAS, US Foodservice has adopted the US Foodservice 1992 Stock Option Plan (as amended from time to time, the "Plan") and pursuant to the Plan granted the Optionee a nonqualified option on March 24, 1995 (the "Grant Date") to purchase (as of immediately prior to the Effective Time (as defined in the Merger Agreement) of the Merger) shares of US Foodservice Class A Common Stock, par value $.01 per share ("US Foodservice Class A Common Stock"), at an exercise price per share of $5.05 (the "USF Option"); and WHEREAS, Section 4.1(e) of the Merger Agreement provides that at the Effective Time certain outstanding options to purchase shares of US Foodservice Class A Common Stock or shares of US Foodservice Class B Common Stock, par value $.01 per share (together with US Foodservice Class A Common Stock, "US Foodservice Common Stock") shall be assumed by the Company and shall constitute an option to acquire shares of its Common Stock, par value $.10 per share ("Stock"). NOW, THEREFORE, the parties hereto agree as follows: 1. DEFINITIONS. Capitalized terms not otherwise defined herein shall have the meaning set forth in the Plan. 2. GRANT OF THE OPTION. The Optionee is hereby granted a nonqualified stock option (the "Option") to purchase an aggregate of shares of Stock pursuant to the terms of this Agreement and the provisions of the Plan. It is intended that the Option will not qualify as an "incentive stock option" within the meaning of Section 422 of the Code. 3. OPTION PRICE. The exercise price of the Option shall be $3.47 per share of Stock issuable hereunder. 4. CONDITIONS TO EXERCISE. (a) As of the Effective Time, this Option (until terminated as hereinafter provided or as provided in the Plan) shall be immediately exercisable to the extent of 100% of the shares of Stock hereinabove specified. To the extent exercisable, this Option may be exercised in whole or in part from time to time. (b) If (x) the employment of an Optionee that is an Employee terminates due to an Involuntary Termination with Cause at any time or Voluntary Termination without Good Reason at any time prior to the Option otherwise becoming exercisable under Section 4(a) hereof, or, in the case of an Optionee with a Consulting Agreement, termination of the Optionee's Consulting Agreement with cause (as provided therein) or by the Optionee voluntarily without cause (as provided therein) or (y) an Optionee, if such Optionee is an Eligible Director, ceases to be a director of the Company or a Subsidiary due to his removal for cause or resignation as a director under circumstances that would permit his removal for cause, then the Option shall terminate immediately and may not be exercised, for cash or Stock, to any extent. 5. PERIOD OF OPTION. Except as otherwise provided in this Agreement, the Option shall expire ten years from the Grant Date or, if earlier, pursuant to the provisions of Section 11 of the Plan. 6. EXERCISE OF OPTION. (a) Except as otherwise provided in this Agreement, the Option shall be exercised as provided in the Plan. (b) The Company may, in its discretion, require that the Optionee pay to the Company, at the time of exercise of any portion of the Option, any such additional amount as the Company deems necessary to satisfy its liability to withhold federal, state or local income tax or any other taxes incurred by reason of the exercise or the transfer of shares of Stock thereupon. (c) If the Plan or any law, regulation or interpretation requires the Company to take any action regarding the Stock, before the Company issues certificates for the Stock being purchased, the Company may delay delivering the certificates for the Stock for the period necessary to take such action; PROVIDED, HOWEVER, that all rights hereunder and under the Plan enjoyed by the Optionee on and as of the date on which such certificates would have been issued but for such delay shall be preserved and shall not be altered, reduced or adversely affected by any such delay; PROVIDED, FURTHER, HOWEVER, that the foregoing proviso shall not be construed to create, add to or supplement any rights not otherwise enjoyed by the Optionee on and as of such date. The certificate or certificates representing the Stock acquired pursuant to the Option may bear a legend restricting the transfer of such Stock, and the Company may impose stop transfer instructions to implement such restrictions, if applicable. 2 (d) The Optionee will not be deemed to be a holder of any shares of Stock pursuant to exercise of the Option until the date of the issuance of a stock certificate to him for such shares of Stock and until the shares of Stock are paid for in full. (e) Upon the circumstances set out in the Plan the Company may elect to pay the Spread in lieu of issuing shares of Stock. 7. REPRESENTATIONS. (a) The Company represents and warrants that (i) this Agreement has been authorized by all necessary corporate action of the Company and is a valid and binding agreement of the Company enforceable against it in accordance with its terms and (ii) upon issuance of certificates for any shares of Stock against delivery of full payment therefor, all such shares will be, at the time of such issuance, duly authorized, validly issued and fully paid and nonassessable shares of the capital stock of the Company, and, upon delivery of such certificates to the Optionee, the Optionee will acquire good, valid and marketable title to such shares free and clear of any adverse lien, claim or other restriction, other than the restrictions imposed by applicable law and any lien or encumbrance created by the Optionee. (b) The Optionee represents and warrants that he or she is not a party to any agreement or instrument which would prevent him or her from entering into or performing his duties in any way under this Agreement. 8. ENTIRE AGREEMENT. This Agreement contains all the understandings between the parties hereto pertaining to the matters referred to herein, and supersedes all undertakings and agreements, whether oral or in writing, previously entered into by them with respect thereto. The Optionee represents that, in executing this Agreement, he does not rely and has not relied upon any representation or statement not set forth herein made by the Company with regard to the subject matter, bases or effect of this Agreement or otherwise. 9. AMENDMENT OR MODIFICATION, WAIVER. No provision of this Agreement may be amended or waived unless such amendment or waiver is agreed to in writing and signed by the Optionee and by a duly authorized officer of the Company or US Foodservice. No waiver by any party hereto of any breach by another party hereto of any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of a similar or dissimilar condition or provision at the same time, any prior time or any subsequent time. 10. NOTICES. Any notice to be given hereunder shall be in writing and shall be deemed given when delivered personally, sent by courier or telecopy or registered or certified mail, postage prepaid, return receipt requested, addressed to the party 3 concerned at the address indicated below or to such other address as such party may subsequently give notice of hereunder in writing: To the Optionee at: To the Company at: Rykoff-Sexton, Inc. 1050 Warrenville Road Lisle, Illinois 60532-5201 Attn: Robert J. Harter, Jr. Senior Vice President, Human Resources and General Counsel Telecopy: (708) 964-0355 Any notice delivered personally or by courier under this Section 10 shall be deemed given on the date delivered and any notice sent by telecopy or registered or certified mail, postage prepaid, return receipt requested, shall be deemed given on the date telecopied or mailed. 11. SEVERABILITY. If any provision of this Agreement or the application of any such provision to any party or circumstances shall be determined by any court of competent jurisdiction to be invalid and unenforceable to any extent, the remainder of this Agreement or the application of such provision to such person or circumstances other than those to which it is so determined to be invalid and unenforceable shall not be affected thereby, and each provision hereof shall be validated and shall be enforced to the fullest extent permitted by law. 12. SURVIVORSHIP. The respective rights and obligations of the parties hereunder shall survive any termination of this Agreement to the extent necessary to the intended preservation of such rights and obligations. 13. GOVERNING LAW. This Agreement will be governed by and construed in accordance with the laws of the State of Delaware, without regard to its conflicts of laws principles. 14. HEADINGS. All descriptive headings of sections and paragraphs in this Agreement are intended solely for convenience, and no provision of this Agreement is to be construed by reference to the heading of any section or paragraph. 15. CONSTRUCTION. This Agreement is made under and subject to the provisions of the Plan, and all of the provisions of the Plan are hereby incorporated herein as provisions of this 4 Agreement. If there is a conflict between the provisions of this Agreement and the provisions of the Plan, the provisions of the Plan will govern. The Optionee hereby consents to the amendment and restatement of the US Foodservice 1992 Stock Option Plan in the form of the Plan presented to the Optionee herewith. By signing this Agreement, the Optionee confirms that he has received a copy of the Plan and has had an opportunity to review the contents thereof. 16. COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 17. USF OPTION. This Agreement supersedes and replaces all of the Optionee's rights and benefits under the Agreement dated as of the Grant Date between US Foodservice (f/k/a Unifax Holdings, Inc.) and the Optionee (the "Prior Option Agreement"). From and after the date of this Agreement, the Prior Option Agreement and the USF Option shall terminate and be of no further force or effect and the Optionee hereby waives and forever relinquishes all rights and benefits thereunder. 5 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. RYKOFF-SEXTON, INC. By: ------------------------------------ Mark Van Stekelenburg Chairman and Chief Executive Officer OPTIONEE --------------------------------------- 6 EX-10.9-2 8 EXHIBIT 10.9.2 PERFORMANCE OPTION AGREEMENT (US FOODSERVICE INC. 1992 STOCK OPTION PLAN) AGREEMENT made on ______________, 1996 (this "Agreement") by and between Rykoff-Sexton, Inc., a Delaware corporation (the "Company"), and (the "Optionee"). WHEREAS, the Company, USF Acquisition Corporation, a Delaware corporation and a wholly-owned subsidiary of the Company ("Merger Sub"), and US Foodservice Inc. (f/k/a Unifax Holdings, Inc.), a Delaware corporation ("US Foodservice"), have entered into an Agreement and Plan of Merger dated February 2, 1996 (the "Merger Agreement"), pursuant to which US Foodservice has been merged with and into Merger Sub (the "Merger"); WHEREAS, US Foodservice has adopted the US Foodservice Inc. 1992 Stock Option Plan (as amended from time to time, the "Plan") and pursuant to the Plan granted the Optionee a nonqualified option on September 4, 1992 (the "Grant Date") to purchase (as of immediately prior to the Effective Time (as defined in the Merger Agreement) of the Merger) shares of US Foodservice Class A Common Stock, par value $.01 per share ("US Foodservice Class A Common Stock"), at an exercise price per share of $15.35 (the "USF Option"); and WHEREAS, Section 4.1(e) of the Merger Agreement provides that at the Effective Time certain outstanding options to purchase shares of US Foodservice Class A Common Stock or shares of US Foodservice Class B Common Stock, par value $.01 per share (together with US Foodservice Class A Common Stock, "US Foodservice Common Stock") shall be assumed by the Company and shall constitute an option to acquire shares of its Common Stock, par value $.10 per share ("Stock"). NOW, THEREFORE, the parties agree as follows: 1. DEFINITIONS. Capitalized terms not otherwise defined herein shall have the meaning set forth in the Plan. 2. GRANT OF THE OPTION. The Optionee is hereby granted a nonqualified stock option (the "Option") to purchase an aggregate of shares of Stock pursuant to the terms of this Agreement and the provisions of the Plan. It is intended that the Option will not qualify as an "incentive stock option" within the meaning of Section 422 of the Code. 3. OPTION PRICE. The exercise price of the Option shall be $10.54 per share of Stock issuable hereunder. 4. CONDITIONS TO EXERCISABILITY. (a) As of the Effective Time, this Option (until terminated as hereinafter provided or as provided in the Plan) shall be (i) immediately exercisable to the extent of 40% of the shares of Stock hereinabove specified, and (ii) exercisable to the extent of the remaining 60% of the shares of Stock hereinabove specified after the Optionee shall have been in the continuous employ of US Foodservice, Merger Sub, the Company or any Subsidiary (as defined in the Plan) of US Foodservice, Merger Sub or the Company for one full year from the Effective Time. For purposes of this paragraph, leaves of absence approved by the Board or any Committee of the Board of US Foodservice, Merger Sub, or the Company for illness, military or governmental service or other cause shall be considered employment. (b) If (x) the Optionee's employment terminates due to such Optionee's Involuntary Termination with Cause, Voluntary Termination without Good Reason (prior to the fifth anniversary of the Grant Date), or termination by the Company of the Optionee's Consulting Agreement with cause (as provided therein) or by the Optionee voluntarily without cause (as defined therein) (prior to the fifth anniversary of the Grant Date) or (y) an Optionee that is an Eligible Director ceases to be a director of the Company or a Subsidiary due to his removal for cause or resignation as a director under circumstances that would permit his removal for cause; then the Option shall terminate immediately and may not be exercised, for cash or Stock, to any extent. 5. PERIOD OF OPTION. Except as otherwise provided in this Agreement, the Option shall expire ten years from the Grant Date or, if earlier, pursuant to the provisions of Section 11 of the Plan. 6. EXERCISE OF OPTION. (a) Except as otherwise provided in this Agreement, the Option shall be exercised as provided in the Plan. (b) The Company may, in its discretion, require that the Optionee pay to the Company, at the time of exercise of any portion of the Option, any such additional amount as the Company deems necessary to satisfy its liability to withhold federal, state or local income tax or any other taxes incurred by reason of the exercise or the transfer of shares of Stock thereupon. (c) If the Plan or any law, regulation or interpretation requires the Company to take any action regarding the Stock, before the Company issues certificates for the Stock being purchased, the Company may delay delivering the certificates for the Stock for the period necessary to take such action; PROVIDED, HOWEVER, that all rights hereunder and under the Plan enjoyed by the Optionee on and as of the date on which such certificates would have been issued but for such delay shall be preserved and shall not be altered, reduced or adversely affected by any such delay; PROVIDED, FURTHER, HOWEVER, that the foregoing proviso shall not be construed to create, add to or supplement any rights not otherwise enjoyed by the Optionee on and as of such date and no additional Options of such Optionee shall become vested subsequent to such date. The certificate or certificates representing the Stock acquired pursuant to the 2 Option may bear a legend restricting the transfer of such Stock, and the Company may impose stop transfer instructions to implement such restrictions, if applicable. (d) The Optionee will not be deemed to be a holder of any shares of Stock pursuant to exercise of the Option until the date of the issuance of a stock certificate to him for such shares of Stock and until the shares of Stock are paid for in full. (e) Upon the circumstances set out in the Plan, the Company may elect to pay the Spread in lieu of issuing shares of Stock. 7. REPRESENTATIONS. (a) The Company represents and warrants that (i) this Agreement has been authorized by all necessary corporate action of the Company and is a valid and binding agreement of the Company enforceable against it in accordance with its terms and (ii) upon issuance of certificates for any shares of Stock against delivery of full payment therefor, all such shares will be, at the time of such issuance, duly authorized, validly issued and fully paid and nonassessable shares of the capital stock of the Company and, upon delivery of such certificates to the Optionee, the Optionee will acquire good, valid and marketable title to such shares free and clear of any adverse lien, claim or other restriction, other than the restrictions imposed by applicable law and any lien or encumbrance created by the Optionee. (b) The Optionee represents and warrants that he or she is not a party to any agreement or instrument which would prevent him or her from entering into or performing his duties in any way under this Agreement. 8. ENTIRE AGREEMENT. This Agreement contains all the understandings between the parties hereto pertaining to the matters referred to herein, and supersedes all undertakings and agreements, whether oral or in writing, previously entered into by them with respect thereto. The Optionee represents that, in executing this Agreement, he does not rely and has not relied upon any representation or statement not set forth herein made by the Company with regard to the subject matter, bases or effect of this Agreement or otherwise. 9. AMENDMENT OR MODIFICATION, WAIVER. No provision of this Agreement may be amended or waived unless such amendment or waiver is agreed to in writing and signed by the Optionee and by a duly authorized officer of the Company. No waiver by any party hereto of any breach by another party hereto of any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of a similar or dissimilar condition or provision at the same time, any prior time or any subsequent time. 3 10. NOTICES. Any notice to be given hereunder shall be in writing and shall be deemed given when delivered personally, sent by courier or telecopy or registered or certified mail, postage prepaid, return receipt requested, addressed to the party concerned at the address indicated below or to such other address as such party may subsequently give notice of hereunder in writing: To the Optionee at: To the Company at: Rykoff-Sexton, Inc. 1050 Warrenville Road Lisle, Illinois 60532-5201 Attn: Robert J. Harter, Jr. Senior Vice President, Human Resources and General Counsel Telecopy: (708) 964-0355 Any notice delivered personally or by courier under this Section 10 shall be deemed given on the date delivered and any notice sent by telecopy or registered or certified mail, postage prepaid, return receipt requested, shall be deemed given on the date telecopied or mailed. 11. SEVERABILITY. If any provision of this Agreement or the application of any such provision to any party or circumstances shall be determined by any court of competent jurisdiction to be invalid and unenforceable to any extent, the remainder of this Agreement or the application of such provision to such person or circumstances other than those to which it is so determined to be invalid and unenforceable shall not be affected thereby, and each provision hereof shall be validated and shall be enforced to the fullest extent permitted by law. 12. SURVIVORSHIP. The respective rights and obligations of the parties hereunder shall survive any termination of this Agreement to the extent necessary to the intended preservation of such rights and obligations. 13. GOVERNING LAW. This Agreement will be governed by and construed in accordance with the laws of the State of Delaware, without regard to its conflicts of laws principles. 14. HEADINGS. All descriptive headings of sections and paragraphs in this Agreement are intended solely for convenience, and no provision of this Agreement is to be construed by reference to the heading of any section or paragraph. 4 15. CONSTRUCTION. This Agreement is made under and subject to the provisions of the Plan, and all of the provisions of the Plan are hereby incorporated herein as provisions of this Agreement. If there is a conflict between the provisions of this Agreement and the provisions of the Plan, the provisions of the Plan will govern. The Optionee hereby consents to the amendment and restatement of the US Foodservice Inc. 1992 Stock Option Plan in the form of the Plan presented to the Optionee herewith. By signing this Agreement, the Optionee confirms that he has received a copy of the Plan and has had an opportunity to review the contents thereof. 16. COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 17. USF OPTION. This Agreement supersedes and replaces all of the Optionee's rights and benefits under the Agreement dated as of the Grant Date between US Foodservice (f/k/a Unifax Holdings, Inc.) and the Optionee (the "Prior Option Agreement"). From and after the date of this Agreement, the Prior Option Agreement and the USF Option shall terminate and be of no further force or effect and the Optionee hereby waives and forever relinquishes all rights and benefits thereunder. 5 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. RYKOFF-SEXTON, INC. By: ------------------------------------ Mark Van Stekelenburg Chairman and Chief Executive Officer --------------------------------------- 6 PERFORMANCE OPTION AGREEMENT (US FOODSERVICE INC. 1992 STOCK OPTION PLAN) AGREEMENT made on ______________, 1996 (this "Agreement") by and between Rykoff-Sexton, Inc., a Delaware corporation (the "Company"), and (the "Optionee"). WHEREAS, the Company, USF Acquisition Corporation, a Delaware corporation and a wholly-owned subsidiary of the Company ("Merger Sub"), and US Foodservice Inc. (f/k/a Unifax Holdings, Inc.), a Delaware corporation ("US Foodservice"), have entered into an Agreement and Plan of Merger dated February 2, 1996 (the "Merger Agreement"), pursuant to which US Foodservice has been merged with and into Merger Sub (the "Merger"); WHEREAS, US Foodservice has adopted the US Foodservice Inc. 1992 Stock Option Plan (as amended from time to time, the "Plan") and pursuant to the Plan granted the Optionee a nonqualified option on March 24, 1995 (the "Grant Date") to purchase (as of immediately prior to the Effective Time (as defined in the Merger Agreement) of the Merger) shares of US Foodservice Class A Common Stock, par value $.01 per share ("US Foodservice Class A Common Stock"), at an exercise price per share of $15.35 (the "USF Option"); and WHEREAS, Section 4.1(e) of the Merger Agreement provides that at the Effective Time certain outstanding options to purchase shares of US Foodservice Class A Common Stock or shares of US Foodservice Class B Common Stock, par value $.01 per share (together with US Foodservice Class A Common Stock, "US Foodservice Common Stock") shall be assumed by the Company and shall constitute an option to acquire shares of its Common Stock, par value $.10 per share ("Stock"). NOW, THEREFORE, the parties agree as follows: 1. DEFINITIONS. Capitalized terms not otherwise defined herein shall have the meaning set forth in the Plan. 2. GRANT OF THE OPTION. The Optionee is hereby granted a nonqualified stock option (the "Option") to purchase an aggregate of shares of Stock pursuant to the terms of this Agreement and the provisions of the Plan. It is intended that the Option will not qualify as an "incentive stock option" within the meaning of Section 422 of the Code. 3. OPTION PRICE. The exercise price of the Option shall be $10.54 per share of Stock issuable hereunder. 4. CONDITIONS TO EXERCISABILITY. (a) As of the Effective Time, this Option (until terminated as hereinafter provided or as provided in the Plan) shall be (i) immediately exercisable to the extent of 40% of the shares of Stock hereinabove specified, and (ii) exercisable to the extent of the remaining 60% of the shares of Stock hereinabove specified after the Optionee shall have been in the continuous employ of US Foodservice, Merger Sub, the Company or any Subsidiary (as defined in the Plan) of US Foodservice, Merger Sub or the Company for one full year from the Effective Time. For purposes of this paragraph, leaves of absence approved by the Board or any Committee of the Board of US Foodservice, Merger Sub, or the Company for illness, military or governmental service or other cause shall be considered employment. (b) If (x) the Optionee's employment terminates due to such Optionee's Involuntary Termination with Cause, Voluntary Termination without Good Reason (prior to the fifth anniversary of the Grant Date), or termination by the Company of the Optionee's Consulting Agreement with cause (as provided therein) or by the Optionee voluntarily without cause (as defined therein) (prior to the fifth anniversary of the Grant Date) or (y) an Optionee that is an Eligible Director ceases to be a director of the Company or a Subsidiary due to his removal for cause or resignation as a director under circumstances that would permit his removal for cause; then the Option shall terminate immediately and may not be exercised, for cash or Stock, to any extent. 5. PERIOD OF OPTION. Except as otherwise provided in this Agreement, the Option shall expire ten years from the Grant Date or, if earlier, pursuant to the provisions of Section 11 of the Plan. 6. EXERCISE OF OPTION. (a) Except as otherwise provided in this Agreement, the Option shall be exercised as provided in the Plan. (b) The Company may, in its discretion, require that the Optionee pay to the Company, at the time of exercise of any portion of the Option, any such additional amount as the Company deems necessary to satisfy its liability to withhold federal, state or local income tax or any other taxes incurred by reason of the exercise or the transfer of shares of Stock thereupon. (c) If the Plan or any law, regulation or interpretation requires the Company to take any action regarding the Stock, before the Company issues certificates for the Stock being purchased, the Company may delay delivering the certificates for the Stock for the period necessary to take such action; PROVIDED, HOWEVER, that all rights hereunder and under the Plan enjoyed by the Optionee on and as of the date on which such certificates would have been issued but for such delay shall be preserved and shall not be altered, reduced or adversely affected by any such delay; PROVIDED, FURTHER, HOWEVER, that the foregoing proviso shall not be construed to create, add to or 2 supplement any rights not otherwise enjoyed by the Optionee on and as of such date and no additional Options of such Optionee shall become vested subsequent to such date. The certificate or certificates representing the Stock acquired pursuant to the Option may bear a legend restricting the transfer of such Stock, and the Company may impose stop transfer instructions to implement such restrictions, if applicable. (d) The Optionee will not be deemed to be a holder of any shares of Stock pursuant to exercise of the Option until the date of the issuance of a stock certificate to him for such shares of Stock and until the shares of Stock are paid for in full. (e) Upon the circumstances set out in the Plan, the Company may elect to pay the Spread in lieu of issuing shares of Stock. 7. REPRESENTATIONS. (a) The Company represents and warrants that (i) this Agreement has been authorized by all necessary corporate action of the Company and is a valid and binding agreement of the Company enforceable against it in accordance with its terms and (ii) upon issuance of certificates for any shares of Stock against delivery of full payment therefor, all such shares will be, at the time of such issuance, duly authorized, validly issued and fully paid and nonassessable shares of the capital stock of the Company and, upon delivery of such certificates to the Optionee, the Optionee will acquire good, valid and marketable title to such shares free and clear of any adverse lien, claim or other restriction, other than the restrictions imposed by applicable law and any lien or encumbrance created by the Optionee. (b) The Optionee represents and warrants that he or she is not a party to any agreement or instrument which would prevent him or her from entering into or performing his duties in any way under this Agreement. 8. ENTIRE AGREEMENT. This Agreement contains all the understandings between the parties hereto pertaining to the matters referred to herein, and supersedes all undertakings and agreements, whether oral or in writing, previously entered into by them with respect thereto. The Optionee represents that, in executing this Agreement, he does not rely and has not relied upon any representation or statement not set forth herein made by the Company with regard to the subject matter, bases or effect of this Agreement or otherwise. 9. AMENDMENT OR MODIFICATION, WAIVER. No provision of this Agreement may be amended or waived unless such amendment or waiver is agreed to in writing and signed by the Optionee and by a duly authorized officer of the Company. No waiver by any party hereto of any breach by another party hereto of any condition or provision of this Agreement to be performed by such other party 3 shall be deemed a waiver of a similar or dissimilar condition or provision at the same time, any prior time or any subsequent time. 10. NOTICES. Any notice to be given hereunder shall be in writing and shall be deemed given when delivered personally, sent by courier or telecopy or registered or certified mail, postage prepaid, return receipt requested, addressed to the party concerned at the address indicated below or to such other address as such party may subsequently give notice of hereunder in writing: To the Optionee at: To the Company at: Rykoff-Sexton, Inc. 1050 Warrenville Road Lisle, Illinois 60532-5201 Attn: Robert J. Harter, Jr. Senior Vice President, Human Resources and General Counsel Telecopy: (708) 964-0355 Any notice delivered personally or by courier under this Section 10 shall be deemed given on the date delivered and any notice sent by telecopy or registered or certified mail, postage prepaid, return receipt requested, shall be deemed given on the date telecopied or mailed. 11. SEVERABILITY. If any provision of this Agreement or the application of any such provision to any party or circumstances shall be determined by any court of competent jurisdiction to be invalid and unenforceable to any extent, the remainder of this Agreement or the application of such provision to such person or circumstances other than those to which it is so determined to be invalid and unenforceable shall not be affected thereby, and each provision hereof shall be validated and shall be enforced to the fullest extent permitted by law. 12. SURVIVORSHIP. The respective rights and obligations of the parties hereunder shall survive any termination of this Agreement to the extent necessary to the intended preservation of such rights and obligations. 13. GOVERNING LAW. This Agreement will be governed by and construed in accordance with the laws of the State of Delaware, without regard to its conflicts of laws principles. 4 14. HEADINGS. All descriptive headings of sections and paragraphs in this Agreement are intended solely for convenience, and no provision of this Agreement is to be construed by reference to the heading of any section or paragraph. 15. CONSTRUCTION. This Agreement is made under and subject to the provisions of the Plan, and all of the provisions of the Plan are hereby incorporated herein as provisions of this Agreement. If there is a conflict between the provisions of this Agreement and the provisions of the Plan, the provisions of the Plan will govern. The Optionee hereby consents to the amendment and restatement of the US Foodservice Inc. 1992 Stock Option Plan in the form of the Plan presented to the Optionee herewith. By signing this Agreement, the Optionee confirms that he has received a copy of the Plan and has had an opportunity to review the contents thereof. 16. COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 17. USF OPTION. This Agreement supersedes and replaces all of the Optionee's rights and benefits under the Agreement dated as of the Grant Date between US Foodservice (f/k/a Unifax Holdings, Inc.) and the Optionee (the "Prior Option Agreement"). From and after the date of this Agreement, the Prior Option Agreement and the USF Option shall terminate and be of no further force or effect and the Optionee hereby waives and forever relinquishes all rights and benefits thereunder. 5 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. RYKOFF-SEXTON, INC. By: ------------------------------------ Mark Van Stekelenburg Chairman and Chief Executive Officer OPTIONEE --------------------------------------- 6 EX-10.10-1 9 EXHIBIT 10.10.1 Exhibit 10.10.1 NORMAL OPTION AGREEMENT (US FOODSERVICE INC. 1993 STOCK OPTION PLAN) AGREEMENT made on _______________, 1996 (this "Agreement") by and between Rykoff-Sexton, Inc., a Delaware corporation (the "Company"), and (the "Optionee"). WHEREAS, the Company, USF Acquisition Corporation, a Delaware corporation and a wholly-owned subsidiary of the Company ("Merger Sub"), and US Foodservice Inc. (f/k/a Unifax Holdings, Inc.), a Delaware corporation ("US Foodservice"), have entered into an Agreement and Plan of Merger dated February 2, 1996 (the "Merger Agreement"), pursuant to which US Foodservice has been merged with and into Merger Sub (the "Merger"); WHEREAS, US Foodservice has adopted the US Foodservice Inc. 1993 Stock Option Plan (as amended from time to time, the "Plan") and pursuant to the Plan granted the Optionee a nonqualified option on December 31, 1993 (the "Grant Date") to purchase (as of immediately prior to the Effective Time (as defined in the Merger Agreement) of the Merger) shares of US Foodservice Class A Common Stock, par value $.01 per share ("US Foodservice Class A Common Stock"), at an exercise price per share of $22.98 (the "USF Option"); and WHEREAS, Section 4.1(e) of the Merger Agreement provides that at the Effective Time certain outstanding options to purchase shares of US Foodservice Class A Common Stock or shares of US Foodservice Class B Common Stock, par value $.01 per share (together with US Foodservice Class A Common Stock, "US Foodservice Common Stock"), shall be assumed by the Company and shall constitute an option to acquire shares of its Common Stock, par value $.10 per share ("Stock"). NOW, THEREFORE, the parties hereto agree as follows: 1. DEFINITIONS. Capitalized terms not otherwise defined herein shall have the meaning set forth in the Plan. 2. GRANT OF THE OPTION. The Optionee is hereby granted a nonqualified stock option (the "Option") to purchase an aggregate of shares of Stock pursuant to the terms of this Agreement and the provisions of the Plan. It is intended that the Option will not qualify as an "incentive stock option" within the meaning of Section 422 of the Code. 3. OPTION PRICE. The exercise price of the Option shall be $15.77 per share of Stock issuable hereunder. 4. CONDITIONS TO EXERCISE. (a) As of the Effective Time, this Option (until terminated as hereinafter provided or as provided in the Plan) shall be (i) immediately exercisable to the extent of 66-2/3% of the shares of Stock hereinabove specified, and (ii) exercisable to the extent of an additional 33-1/3% of such shares after the successive year after January 1, 1996 during which the Optionee shall have been in the continuous employ of US Foodservice, Merger Sub, the Company or any Subsidiary (as defined in the Plan) of the Company. The Option shall not become exercisable as to any additional shares after the date that the employment of the Optionee with the Company or any of its Subsidiaries terminates or is terminated, for whatever reason. (b) If the employment of an Optionee terminates due to an involuntary Termination with Cause at any time or Voluntary Termination without Good Reason, then the Option shall terminate immediately and may not be exercised, for cash or Stock, to any extent. 5. PERIOD OF OPTION. Except as otherwise provided in this Agreement or the Plan, the Option shall expire ten years from the Grant Date or, if earlier, pursuant to the provisions of the Plan. 6. EXERCISE OF THE OPTION. (a) Except as otherwise provided in this Agreement, the Option shall be exercised as provided in the Plan. (b) The Plan permits the Company to elect to pay the Optionee the Spread instead of issuing shares of Stock upon exercise of the Option and to elect to pay the Optionee the Spread and terminate the Option in connection with a Change in Control. (c) The Company may, in its discretion, require that the Optionee pay to the Company, at the time of exercise of any portion of the Option, any such additional amount as the Company deems necessary to satisfy its liability to withhold federal, state or local income tax or any other taxes incurred by reason of the exercise or the transfer of shares of Stock thereupon. (d) If the Plan or any law, regulation or interpretation requires the Company to take any action regarding the Stock, before the Company issues certificates for the Stock being purchased, the Company may delay delivering the certificates for the Stock for the period necessary to take such action; PROVIDED, HOWEVER, that all rights hereunder and under the Plan enjoyed by the Optionee on and as of the date on which such certificates would have been issued but for such delay shall be preserved and shall not be altered, reduced or adversely affected by any such delay; PROVIDED, FURTHER, HOWEVER, that the foregoing proviso shall not be construed to create, add to or supplement any rights not otherwise enjoyed by the Optionee on and as of such date. The certificate or certificates representing the Stock acquired pursuant to the Option may bear a legend restricting the transfer of such Stock, and the Company may impose stop transfer instructions to implement such restrictions, if applicable. 2 (e) The Optionee will not be deemed to be a holder of any shares of Stock pursuant to exercise of the Option until the date of the issuance of a stock certificate to him for such shares of Stock and until the shares of Stock are paid for in full. 7. REPRESENTATIONS. (a) The Company represents and warrants that (i) this Agreement has been authorized by all necessary corporate action of the Company and is a valid and binding agreement of the Company enforceable against it in accordance with its terms and (ii) upon issuance of certificates for any shares of Stock against delivery of full payment therefore, all such shares will be, at the time of such issuance, duly authorized, validly issued and fully paid and nonassessable shares of the capital stock of the Company, and, upon delivery of such certificates to the Optionee, the Optionee will acquire good, valid and marketable title to such shares free and clear of any adverse lien, claim or other restriction, other than restrictions imposed by applicable law and any lien or encumbrance created by the Optionee. (b) The Optionee represents and warrants that he or she is not a party to any agreement or instrument which would prevent him or her from entering into or performing his duties in any way under this Agreement. 8. ENTIRE AGREEMENT. This Agreement contains all the understandings between the parties hereto pertaining to the matters referred to herein, and supersedes all undertakings and agreements, whether oral or in writing, previously entered into by them with respect thereto. The Optionee represents that, in executing this Agreement, he does not rely and has not relied upon any representation or statement not set forth herein made by the Company with regard to the subject matter, bases or effect of this Agreement or otherwise. 9. AMENDMENT OR MODIFICATION, WAIVER. No provision of this Agreement may be amended or waived unless such amendment or waiver is agreed to in writing and signed by the Optionee and by a duly authorized officer of the Company or US Foodservice. No waiver by any party hereto of any breach by another party hereto or any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of a similar or dissimilar condition or provision at the same time, any prior time or any subsequent time. 10. NOTICES. Any notice to be given hereunder shall be in writing and shall be deemed given when delivered personally, sent by courier or telecopy or registered or certified mail, postage prepaid, return receipt requested, addressed to the party concerned at the address indicated below or to such other address as such party may subsequently give notice of hereunder in writing: 3 To Optionee at: To the Company at: Rykoff-Sexton, Inc. 1050 Warrenville Road Lisle, Illinois 60532-5201 Attn: Robert J. Harter, Jr. Senior Vice President, Human Resources and General Counsel Telecopy: (708) 964-0355 Any notice delivered personally or by courier under this Section 10 shall be deemed given on the date delivered and any notice sent by telecopy or registered or certified mail, postage prepaid, return receipt requested, shall be deemed given on the date telecopied or mailed. 11. SEVERABILITY. If any provision of this Agreement or the application of any such provision to any party or circumstances shall be determined by any court of competent jurisdiction to be invalid and unenforceable to any extent, the remainder of this Agreement or the application of such provision to such person or circumstances other than those to which it is so determined to be invalid and unenforceable shall not be affected thereby, and each provision hereof shall be valid and shall be enforced to the fullest extent permitted by law. 12. SURVIVORSHIP. The respective rights and obligations of the parties hereunder shall survive any termination of this Agreement to the extent necessary to the intended preservation of such rights and obligations. 13. GOVERNING LAW. This Agreement will be governed by and construed in accordance with the laws of the State of Delaware, without regard to its conflicts of laws principles. 14. HEADINGS. All descriptive headings of sections and paragraphs in this Agreement are intended solely for convenience, and no provision of this Agreement is to be construed by reference to the heading of any section or paragraph. 15. US FOODSERVICE INC. 1993 STOCK OPTION PLAN; CONSTRUCTION. This Agreement is made under and subject to the provisions of the Plan, and all of the provisions of the Plan are hereby incorporated herein as provisions of this Agreement. If there is a conflict between the provisions of this Agreement and the provisions of the Plan, the provisions of the Plan will govern. The Optionee hereby consents to the amendment and restatement of the US Foodservice Inc. 1993 Stock Option Plan in the form of the Plan presented to the Optionee herewith. By 4 signing this Agreement, the Optionee confirms that he has received a copy of the Plan and has had an opportunity to review the contents thereof. 16. COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 17. USF OPTION. This Agreement supersedes and replaces all of the Optionee's rights and benefits under the Agreement dated as of the Grant Date between US Foodservice (f/k/a Unifax Holdings, Inc.) and the Optionee (the "Prior Option Agreement"). From and after the date of this Agreement, the Prior Option Agreement and the USF Option shall terminate and be of no further force or effect and the Optionee hereby waives and forever relinquishes all rights and benefits thereunder. 5 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. RYKOFF-SEXTON, INC. By: ------------------------------------- Mark Van Stekelenburg Chairman and Chief Executive Officer OPTIONEE ---------------------------------------- 6 NORMAL OPTION AGREEMENT (US FOODSERVICE INC. 1993 STOCK OPTION PLAN) AGREEMENT made on _______________, 1996 (this "Agreement") by and between Rykoff-Sexton, Inc., a Delaware corporation (the "Company"), and (the "Optionee"). WHEREAS, the Company, USF Acquisition Corporation, a Delaware corporation and a wholly-owned subsidiary of the Company ("Merger Sub"), and US Foodservice Inc. (f/k/a Unifax Holdings, Inc.), a Delaware corporation ("US Foodservice"), have entered into an Agreement and Plan of Merger dated February 2, 1996 (the "Merger Agreement"), pursuant to which US Foodservice has been merged with and into Merger Sub (the "Merger"); WHEREAS, US Foodservice has adopted the US Foodservice Inc. 1993 Stock Option Plan (as amended from time to time, the "Plan") and pursuant to the Plan granted the Optionee a nonqualified option on February 1, 1994 (the "Grant Date") to purchase (as of immediately prior to the Effective Time (as defined in the Merger Agreement) of the Merger) shares of US Foodservice Class A Common Stock, par value $.01 per share ("US Foodservice Class A Common Stock"), at an exercise price per share of $22.98 (the "USF Option"); and WHEREAS, Section 4.1(e) of the Merger Agreement provides that at the Effective Time certain outstanding options to purchase shares of US Foodservice Class A Common Stock or shares of US Foodservice Class B Common Stock, par value $.01 per share (together with US Foodservice Class A Common Stock, "US Foodservice Common Stock"), shall be assumed by the Company and shall constitute an option to acquire shares of its Common Stock, par value $.10 per share ("Stock"). NOW, THEREFORE, the parties hereto agree as follows: 1. DEFINITIONS. Capitalized terms not otherwise defined herein shall have the meaning set forth in the Plan. 2. GRANT OF THE OPTION. The Optionee is hereby granted a nonqualified stock option (the "Option") to purchase an aggregate of shares of Stock pursuant to the terms of this Agreement and the provisions of the Plan. It is intended that the Option will not qualify as an "incentive stock option" within the meaning of Section 422 of the Code. 3. OPTION PRICE. The exercise price of the Option shall be $15.77 per share of Stock issuable hereunder. 4. CONDITIONS TO EXERCISE. (a) As of the Effective Time, this Option (until terminated as hereinafter provided or as provided in the Plan) shall be (i) immediately exercisable to the extent of 66-2/3% of the shares of Stock hereinabove specified, and (ii) exercisable to the extent of an additional 33-1/3% of such shares after the successive year after January 1, 1996 during which the Optionee shall have been in the continuous employ of US Foodservice, Merger Sub, the Company or any Subsidiary (as defined in the Plan) of the Company. The Option shall not become exercisable as to any additional shares after the date that the employment of the Optionee with the Company or any of its Subsidiaries terminates or is terminated, for whatever reason. (b) If the employment of an Optionee terminates due to an involuntary Termination with Cause at any time or Voluntary Termination without Good Reason, then the Option shall terminate immediately and may not be exercised, for cash or Stock, to any extent. 5. PERIOD OF OPTION. Except as otherwise provided in this Agreement or the Plan, the Option shall expire ten years from the Grant Date or, if earlier, pursuant to the provisions of the Plan. 6. EXERCISE OF THE OPTION. (a) Except as otherwise provided in this Agreement, the Option shall be exercised as provided in the Plan. (b) The Plan permits the Company to elect to pay the Optionee the Spread instead of issuing shares of Stock upon exercise of the Option and to elect to pay the Optionee the Spread and terminate the Option in connection with a Change in Control. (c) The Company may, in its discretion, require that the Optionee pay to the Company, at the time of exercise of any portion of the Option, any such additional amount as the Company deems necessary to satisfy its liability to withhold federal, state or local income tax or any other taxes incurred by reason of the exercise or the transfer of shares of Stock thereupon. (d) If the Plan or any law, regulation or interpretation requires the Company to take any action regarding the Stock, before the Company issues certificates for the Stock being purchased, the Company may delay delivering the certificates for the Stock for the period necessary to take such action; PROVIDED, HOWEVER, that all rights hereunder and under the Plan enjoyed by the Optionee on and as of the date on which such certificates would have been issued but for such delay shall be preserved and shall not be altered, reduced or adversely affected by any such delay; PROVIDED, FURTHER, HOWEVER, that the foregoing proviso shall not be construed to create, add to or supplement any rights not otherwise enjoyed by the Optionee on and as of such date. The certificate or certificates representing the Stock acquired pursuant to the Option may bear a legend restricting the transfer of such Stock, and the Company 2 may impose stop transfer instructions to implement such restrictions, if applicable. (e) The Optionee will not be deemed to be a holder of any shares of Stock pursuant to exercise of the Option until the date of the issuance of a stock certificate to him for such shares of Stock and until the shares of Stock are paid for in full. 7. REPRESENTATIONS. (a) The Company represents and warrants that (i) this Agreement has been authorized by all necessary corporate action of the Company and is a valid and binding agreement of the Company enforceable against it in accordance with its terms and (ii) upon issuance of certificates for any shares of Stock against delivery of full payment therefore, all such shares will be, at the time of such issuance, duly authorized, validly issued and fully paid and nonassessable shares of the capital stock of the Company, and, upon delivery of such certificates to the Optionee, the Optionee will acquire good, valid and marketable title to such shares free and clear of any adverse lien, claim or other restriction, other than restrictions imposed by applicable law and any lien or encumbrance created by the Optionee. (b) The Optionee represents and warrants that he or she is not a party to any agreement or instrument which would prevent him or her from entering into or performing his duties in any way under this Agreement. 8. ENTIRE AGREEMENT. This Agreement contains all the understandings between the parties hereto pertaining to the matters referred to herein, and supersedes all undertakings and agreements, whether oral or in writing, previously entered into by them with respect thereto. The Optionee represents that, in executing this Agreement, he does not rely and has not relied upon any representation or statement not set forth herein made by the Company with regard to the subject matter, bases or effect of this Agreement or otherwise. 9. AMENDMENT OR MODIFICATION, WAIVER. No provision of this Agreement may be amended or waived unless such amendment or waiver is agreed to in writing and signed by the Optionee and by a duly authorized officer of the Company or US Foodservice. No waiver by any party hereto of any breach by another party hereto or any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of a similar or dissimilar condition or provision at the same time, any prior time or any subsequent time. 10. NOTICES. Any notice to be given hereunder shall be in writing and shall be deemed given when delivered personally, sent by courier or telecopy or registered or certified mail, postage prepaid, return receipt requested, addressed to the party concerned at the address indicated below or to such other address 3 as such party may subsequently give notice of hereunder in writing: To Optionee at: To the Company at: Rykoff-Sexton, Inc. 1050 Warrenville Road Lisle, Illinois 60532-5201 Attn: Robert J. Harter, Jr. Senior Vice President, Human Resources and General Counsel Telecopy: (708) 964-0355 Any notice delivered personally or by courier under this Section 10 shall be deemed given on the date delivered and any notice sent by telecopy or registered or certified mail, postage prepaid, return receipt requested, shall be deemed given on the date telecopied or mailed. 11. SEVERABILITY. If any provision of this Agreement or the application of any such provision to any party or circumstances shall be determined by any court of competent jurisdiction to be invalid and unenforceable to any extent, the remainder of this Agreement or the application of such provision to such person or circumstances other than those to which it is so determined to be invalid and unenforceable shall not be affected thereby, and each provision hereof shall be valid and shall be enforced to the fullest extent permitted by law. 12. SURVIVORSHIP. The respective rights and obligations of the parties hereunder shall survive any termination of this Agreement to the extent necessary to the intended preservation of such rights and obligations. 13. GOVERNING LAW. This Agreement will be governed by and construed in accordance with the laws of the State of Delaware, without regard to its conflicts of laws principles. 14. HEADINGS. All descriptive headings of sections and paragraphs in this Agreement are intended solely for convenience, and no provision of this Agreement is to be construed by reference to the heading of any section or paragraph. 15. US FOODSERVICE INC. 1993 STOCK OPTION PLAN; CONSTRUCTION. This Agreement is made under and subject to the provisions of the Plan, and all of the provisions of the Plan are hereby incorporated herein as provisions of this Agreement. If there is a conflict between the provisions of this Agreement and 4 the provisions of the Plan, the provisions of the Plan will govern. The Optionee hereby consents to the amendment and restatement of the US Foodservice Inc. 1993 Stock Option Plan in the form of the Plan presented to the Optionee herewith. By signing this Agreement, the Optionee confirms that he has received a copy of the Plan and has had an opportunity to review the contents thereof. 16. COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 17. USF OPTION. This Agreement supersedes and replaces all of the Optionee's rights and benefits under the Agreement dated as of the Grant Date between US Foodservice (f/k/a Unifax Holdings, Inc.) and the Optionee (the "Prior Option Agreement"). From and after the date of this Agreement, the Prior Option Agreement and the USF Option shall terminate and be of no further force or effect and the Optionee hereby waives and forever relinquishes all rights and benefits thereunder. 5 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. RYKOFF-SEXTON, INC. By: ------------------------------------- Mark Van Stekelenburg Chairman and Chief Executive Officer OPTIONEE ---------------------------------------- 6 NORMAL OPTION AGREEMENT (US FOODSERVICE INC. 1993 STOCK OPTION PLAN) AGREEMENT made on _______________, 1996 (this "Agreement") by and between Rykoff-Sexton, Inc., a Delaware corporation (the "Company"), and (the "Optionee"). WHEREAS, the Company, USF Acquisition Corporation, a Delaware corporation and a wholly-owned subsidiary of the Company ("Merger Sub"), and US Foodservice Inc. (f/k/a Unifax Holdings, Inc.), a Delaware corporation ("US Foodservice"), have entered into an Agreement and Plan of Merger dated February 2, 1996 (the "Merger Agreement"), pursuant to which US Foodservice has been merged with and into Merger Sub (the "Merger"); WHEREAS, US Foodservice has adopted the US Foodservice Inc. 1993 Stock Option Plan (as amended from time to time, the "Plan") and pursuant to the Plan granted the Optionee a nonqualified option on March 24, 1995 (the "Grant Date") to purchase (as of immediately prior to the Effective Time (as defined in the Merger Agreement) of the Merger) shares of US Foodservice Class A Common Stock, par value $.01 per share ("US Foodservice Class A Common Stock"), at an exercise price per share of $21.46 (the "USF Option"); and WHEREAS, Section 4.1(e) of the Merger Agreement provides that at the Effective Time certain outstanding options to purchase shares of US Foodservice Class A Common Stock or shares of US Foodservice Class B Common Stock, par value $.01 per share (together with US Foodservice Class A Common Stock, "US Foodservice Common Stock"), shall be assumed by the Company and shall constitute an option to acquire shares of its Common Stock, par value $.10 per share ("Stock"). NOW, THEREFORE, the parties hereto agree as follows: 1. DEFINITIONS. Capitalized terms not otherwise defined herein shall have the meaning set forth in the Plan. 2. GRANT OF THE OPTION. The Optionee is hereby granted a nonqualified stock option (the "Option") to purchase an aggregate of shares of Stock pursuant to the terms of this Agreement and the provisions of the Plan. It is intended that the Option will not qualify as an "incentive stock option" within the meaning of Section 422 of the Code. 3. OPTION PRICE. The exercise price of the Option shall be $14.73 per share of Stock issuable hereunder. 4. CONDITIONS TO EXERCISE. (a) As of the Effective Time, this Option (until terminated as hereinafter provided or as provided in the Plan) shall be (i) immediately exercisable to the extent of 33-1/3% of the shares of Stock hereinabove specified, and (ii) exercisable to the extent of an additional 33-1/3% of such shares after each of the two successive years after January 1, 1996 during which the Optionee shall have been in the continuous employ of US Foodservice, Merger Sub, the Company or any Subsidiary (as defined in the Plan) of the Company. The Option shall not become exercisable as to any additional shares after the date that the employment of the Optionee with the Company or any of its Subsidiaries terminates or is terminated, for whatever reason. (b) If the employment of an Optionee terminates due to an involuntary Termination with Cause at any time or Voluntary Termination without Good Reason, then the Option shall terminate immediately and may not be exercised, for cash or Stock, to any extent. 5. PERIOD OF OPTION. Except as otherwise provided in this Agreement or the Plan, the Option shall expire ten years from the Grant Date or, if earlier, pursuant to the provisions of the Plan. 6. EXERCISE OF THE OPTION. (a) Except as otherwise provided in this Agreement, the Option shall be exercised as provided in the Plan. (b) The Plan permits the Company to elect to pay the Optionee the Spread instead of issuing shares of Stock upon exercise of the Option and to elect to pay the Optionee the Spread and terminate the Option in connection with a Change in Control. (c) The Company may, in its discretion, require that the Optionee pay to the Company, at the time of exercise of any portion of the Option, any such additional amount as the Company deems necessary to satisfy its liability to withhold federal, state or local income tax or any other taxes incurred by reason of the exercise or the transfer of shares of Stock thereupon. (d) If the Plan or any law, regulation or interpretation requires the Company to take any action regarding the Stock, before the Company issues certificates for the Stock being purchased, the Company may delay delivering the certificates for the Stock for the period necessary to take such action; PROVIDED, HOWEVER, that all rights hereunder and under the Plan enjoyed by the Optionee on and as of the date on which such certificates would have been issued but for such delay shall be preserved and shall not be altered, reduced or adversely affected by any such delay; PROVIDED, FURTHER, HOWEVER, that the foregoing proviso shall not be construed to create, add to or supplement any rights not otherwise enjoyed by the Optionee on and as of such date. The certificate or certificates representing the Stock acquired pursuant to the Option may bear a legend restricting the transfer of such Stock, and the Company 2 may impose stop transfer instructions to implement such restrictions, if applicable. (e) The Optionee will not be deemed to be a holder of any shares of Stock pursuant to exercise of the Option until the date of the issuance of a stock certificate to him for such shares of Stock and until the shares of Stock are paid for in full. 7. REPRESENTATIONS. (a) The Company represents and warrants that (i) this Agreement has been authorized by all necessary corporate action of the Company and is a valid and binding agreement of the Company enforceable against it in accordance with its terms and (ii) upon issuance of certificates for any shares of Stock against delivery of full payment therefore, all such shares will be, at the time of such issuance, duly authorized, validly issued and fully paid and nonassessable shares of the capital stock of the Company, and, upon delivery of such certificates to the Optionee, the Optionee will acquire good, valid and marketable title to such shares free and clear of any adverse lien, claim or other restriction, other than restrictions imposed by applicable law and any lien or encumbrance created by the Optionee. (b) The Optionee represents and warrants that he or she is not a party to any agreement or instrument which would prevent him or her from entering into or performing his duties in any way under this Agreement. 8. ENTIRE AGREEMENT. This Agreement contains all the understandings between the parties hereto pertaining to the matters referred to herein, and supersedes all undertakings and agreements, whether oral or in writing, previously entered into by them with respect thereto. The Optionee represents that, in executing this Agreement, he does not rely and has not relied upon any representation or statement not set forth herein made by the Company with regard to the subject matter, bases or effect of this Agreement or otherwise. 9. AMENDMENT OR MODIFICATION, WAIVER. No provision of this Agreement may be amended or waived unless such amendment or waiver is agreed to in writing and signed by the Optionee and by a duly authorized officer of the Company or US Foodservice. No waiver by any party hereto of any breach by another party hereto or any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of a similar or dissimilar condition or provision at the same time, any prior time or any subsequent time. 10. NOTICES. Any notice to be given hereunder shall be in writing and shall be deemed given when delivered personally, sent by courier or telecopy or registered or certified mail, postage prepaid, return receipt requested, addressed to the party concerned at the address indicated below or to such other address 3 as such party may subsequently give notice of hereunder in writing: To Optionee at: To the Company at: Rykoff-Sexton, Inc. 1050 Warrenville Road Lisle, Illinois 60532-5201 Attn: Robert J. Harter, Jr. Senior Vice President, Human Resources and General Counsel Telecopy: (708) 964-0355 Any notice delivered personally or by courier under this Section 10 shall be deemed given on the date delivered and any notice sent by telecopy or registered or certified mail, postage prepaid, return receipt requested, shall be deemed given on the date telecopied or mailed. 11. SEVERABILITY. If any provision of this Agreement or the application of any such provision to any party or circumstances shall be determined by any court of competent jurisdiction to be invalid and unenforceable to any extent, the remainder of this Agreement or the application of such provision to such person or circumstances other than those to which it is so determined to be invalid and unenforceable shall not be affected thereby, and each provision hereof shall be valid and shall be enforced to the fullest extent permitted by law. 12. SURVIVORSHIP. The respective rights and obligations of the parties hereunder shall survive any termination of this Agreement to the extent necessary to the intended preservation of such rights and obligations. 13. GOVERNING LAW. This Agreement will be governed by and construed in accordance with the laws of the State of Delaware, without regard to its conflicts of laws principles. 14. HEADINGS. All descriptive headings of sections and paragraphs in this Agreement are intended solely for convenience, and no provision of this Agreement is to be construed by reference to the heading of any section or paragraph. 15. US FOODSERVICE INC. 1993 STOCK OPTION PLAN; CONSTRUCTION. This Agreement is made under and subject to the provisions of the Plan, and all of the provisions of the Plan are hereby incorporated herein as provisions of this Agreement. If there is a conflict between the provisions of this Agreement and 4 the provisions of the Plan, the provisions of the Plan will govern. The Optionee hereby consents to the amendment and restatement of the US Foodservice Inc. 1993 Stock Option Plan in the form of the Plan presented to the Optionee herewith. By signing this Agreement, the Optionee confirms that he has received a copy of the Plan and has had an opportunity to review the contents thereof. 16. COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 17. USF OPTION. This Agreement supersedes and replaces all of the Optionee's rights and benefits under the Agreement dated as of the Grant Date between US Foodservice (f/k/a Unifax Holdings, Inc.) and the Optionee (the "Prior Option Agreement"). From and after the date of this Agreement, the Prior Option Agreement and the USF Option shall terminate and be of no further force or effect and the Optionee hereby waives and forever relinquishes all rights and benefits thereunder. 5 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. RYKOFF-SEXTON, INC. By: ------------------------------------- Mark Van Stekelenburg Chairman and Chief Executive Officer OPTIONEE ---------------------------------------- 6 NORMAL OPTION AGREEMENT (US FOODSERVICE INC. 1993 STOCK OPTION PLAN) AGREEMENT made on _______________, 1996 (this "Agreement") by and between Rykoff-Sexton, Inc., a Delaware corporation (the "Company"), and (the "Optionee"). WHEREAS, the Company, USF Acquisition Corporation, a Delaware corporation and a wholly-owned subsidiary of the Company ("Merger Sub"), and US Foodservice Inc. (f/k/a Unifax Holdings, Inc.), a Delaware corporation ("US Foodservice"), have entered into an Agreement and Plan of Merger dated February 2, 1996 (the "Merger Agreement"), pursuant to which US Foodservice has been merged with and into Merger Sub (the "Merger"); WHEREAS, US Foodservice has adopted the US Foodservice Inc. 1993 Stock Option Plan (as amended from time to time, the "Plan") and pursuant to the Plan granted the Optionee a nonqualified option on September 16, 1994 (the "Grant Date") to purchase (as of immediately prior to the Effective Time (as defined in the Merger Agreement) of the Merger) shares of US Foodservice Class A Common Stock, par value $.01 per share ("US Foodservice Class A Common Stock"), at an exercise price per share of $21.46 (the "USF Option"); and WHEREAS, Section 4.1(e) of the Merger Agreement provides that at the Effective Time certain outstanding options to purchase shares of US Foodservice Class A Common Stock or shares of US Foodservice Class B Common Stock, par value $.01 per share (together with US Foodservice Class A Common Stock, "US Foodservice Common Stock"), shall be assumed by the Company and shall constitute an option to acquire shares of its Common Stock, par value $.10 per share ("Stock"). NOW, THEREFORE, the parties hereto agree as follows: 1. DEFINITIONS. Capitalized terms not otherwise defined herein shall have the meaning set forth in the Plan. 2. GRANT OF THE OPTION. The Optionee is hereby granted a nonqualified stock option (the "Option") to purchase an aggregate of shares of Stock pursuant to the terms of this Agreement and the provisions of the Plan. It is intended that the Option will not qualify as an "incentive stock option" within the meaning of Section 422 of the Code. 3. OPTION PRICE. The exercise price of the Option shall be $14.73 per share of Stock issuable hereunder. 4. CONDITIONS TO EXERCISE. (a) As of the Effective Time, this Option (until terminated as hereinafter provided or as provided in the Plan) shall be immediately exercisable to the extent of 100% of the shares of Stock hereinabove specified. The Option shall not become exercisable as to any additional shares after the date that the employment of the Optionee with the Company or any of its Subsidiaries terminates or is terminated, for whatever reason. (b) If the employment of an Optionee terminates due to an involuntary Termination with Cause at any time or Voluntary Termination without Good Reason, then the Option shall terminate immediately and may not be exercised, for cash or Stock, to any extent. 5. PERIOD OF OPTION. Except as otherwise provided in this Agreement or the Plan, the Option shall expire ten years from the Grant Date or, if earlier, pursuant to the provisions of the Plan. 6. EXERCISE OF THE OPTION. (a) Except as otherwise provided in this Agreement, the Option shall be exercised as provided in the Plan. (b) The Plan permits the Company to elect to pay the Optionee the Spread instead of issuing shares of Stock upon exercise of the Option and to elect to pay the Optionee the Spread and terminate the Option in connection with a Change in Control. (c) The Company may, in its discretion, require that the Optionee pay to the Company, at the time of exercise of any portion of the Option, any such additional amount as the Company deems necessary to satisfy its liability to withhold federal, state or local income tax or any other taxes incurred by reason of the exercise or the transfer of shares of Stock thereupon. (d) If the Plan or any law, regulation or interpretation requires the Company to take any action regarding the Stock, before the Company issues certificates for the Stock being purchased, the Company may delay delivering the certificates for the Stock for the period necessary to take such action; PROVIDED, HOWEVER, that all rights hereunder and under the Plan enjoyed by the Optionee on and as of the date on which such certificates would have been issued but for such delay shall be preserved and shall not be altered, reduced or adversely affected by any such delay; PROVIDED, FURTHER, HOWEVER, that the foregoing proviso shall not be construed to create, add to or supplement any rights not otherwise enjoyed by the Optionee on and as of such date. The certificate or certificates representing the Stock acquired pursuant to the Option may bear a legend restricting the transfer of such Stock, and the Company may impose stop transfer instructions to implement such restrictions, if applicable. (e) The Optionee will not be deemed to be a holder of any shares of Stock pursuant to exercise of the Option until the date of the issuance of a stock certificate to him for such 2 shares of Stock and until the shares of Stock are paid for in full. 7. REPRESENTATIONS. (a) The Company represents and warrants that (i) this Agreement has been authorized by all necessary corporate action of the Company and is a valid and binding agreement of the Company enforceable against it in accordance with its terms and (ii) upon issuance of certificates for any shares of Stock against delivery of full payment therefore, all such shares will be, at the time of such issuance, duly authorized, validly issued and fully paid and nonassessable shares of the capital stock of the Company, and, upon delivery of such certificates to the Optionee, the Optionee will acquire good, valid and marketable title to such shares free and clear of any adverse lien, claim or other restriction, other than restrictions imposed by applicable law and any lien or encumbrance created by the Optionee. (b) The Optionee represents and warrants that he or she is not a party to any agreement or instrument which would prevent him or her from entering into or performing his duties in any way under this Agreement. 8. ENTIRE AGREEMENT. This Agreement contains all the understandings between the parties hereto pertaining to the matters referred to herein, and supersedes all undertakings and agreements, whether oral or in writing, previously entered into by them with respect thereto. The Optionee represents that, in executing this Agreement, he does not rely and has not relied upon any representation or statement not set forth herein made by the Company with regard to the subject matter, bases or effect of this Agreement or otherwise. 9. AMENDMENT OR MODIFICATION, WAIVER. No provision of this Agreement may be amended or waived unless such amendment or waiver is agreed to in writing and signed by the Optionee and by a duly authorized officer of the Company or US Foodservice. No waiver by any party hereto of any breach by another party hereto or any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of a similar or dissimilar condition or provision at the same time, any prior time or any subsequent time. 10. NOTICES. Any notice to be given hereunder shall be in writing and shall be deemed given when delivered personally, sent by courier or telecopy or registered or certified mail, postage prepaid, return receipt requested, addressed to the party concerned at the address indicated below or to such other address as such party may subsequently give notice of hereunder in writing: 3 To Optionee at: To the Company at: Rykoff-Sexton, Inc. 1050 Warrenville Road Lisle, Illinois 60532-5201 Attn: Robert J. Harter, Jr. Senior Vice President, Human Resources and General Counsel Telecopy: (708) 964-0355 Any notice delivered personally or by courier under this Section 10 shall be deemed given on the date delivered and any notice sent by telecopy or registered or certified mail, postage prepaid, return receipt requested, shall be deemed given on the date telecopied or mailed. 11. SEVERABILITY. If any provision of this Agreement or the application of any such provision to any party or circumstances shall be determined by any court of competent jurisdiction to be invalid and unenforceable to any extent, the remainder of this Agreement or the application of such provision to such person or circumstances other than those to which it is so determined to be invalid and unenforceable shall not be affected thereby, and each provision hereof shall be valid and shall be enforced to the fullest extent permitted by law. 12. SURVIVORSHIP. The respective rights and obligations of the parties hereunder shall survive any termination of this Agreement to the extent necessary to the intended preservation of such rights and obligations. 13. GOVERNING LAW. This Agreement will be governed by and construed in accordance with the laws of the State of Delaware, without regard to its conflicts of laws principles. 14. HEADINGS. All descriptive headings of sections and paragraphs in this Agreement are intended solely for convenience, and no provision of this Agreement is to be construed by reference to the heading of any section or paragraph. 15. US FOODSERVICE INC. 1993 STOCK OPTION PLAN; CONSTRUCTION. This Agreement is made under and subject to the provisions of the Plan, and all of the provisions of the Plan are hereby incorporated herein as provisions of this Agreement. If there is a conflict between the provisions of this Agreement and the provisions of the Plan, the provisions of the Plan will govern. The Optionee hereby consents to the amendment and restatement of the US Foodservice Inc. 1993 Stock Option Plan in 4 the form of the Plan presented to the Optionee herewith. By signing this Agreement, the Optionee confirms that he has received a copy of the Plan and has had an opportunity to review the contents thereof. 16. COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 17. USF OPTION. This Agreement supersedes and replaces all of the Optionee's rights and benefits under the Agreement dated as of the Grant Date between US Foodservice (f/k/a Unifax Holdings, Inc.) and the Optionee (the "Prior Option Agreement"). From and after the date of this Agreement, the Prior Option Agreement and the USF Option shall terminate and be of no further force or effect and the Optionee hereby waives and forever relinquishes all rights and benefits thereunder. 5 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. RYKOFF-SEXTON, INC. By: ------------------------------------- Mark Van Stekelenburg Chairman and Chief Executive Officer OPTIONEE ---------------------------------------- 6 EX-10.14 10 EXHIBIT 10.14 Exhibit 10.14 EMPLOYMENT AGREEMENT THIS AGREEMENT (the "Agreement") is made and entered into as of the 17 day of May, 1996, by and between RYKOFF-SEXTON, INC., a Delaware corporation (the "Company"), and FRANK H. BEVEVINO (the "Executive"). WHEREAS, immediately prior to the date hereof, the Executive was Chief Executive Officer and Chairman of the Board of Directors of US Foodservice Inc., a Delaware corporation ("USFS"); WHEREAS, pursuant to an Agreement and Plan of Merger dated February 2, 1996 (the "Merger Agreement") by and among the Company, USFS and USF Acquisition Corporation ("Acquisition"), a Delaware corporation and a wholly-owned subsidiary of the Company, as of the date hereof, USFS will be merged with and into Acquisition, with Acquisition as the surviving entity (the "Merger"); WHEREAS, this Agreement was subject to and contingent upon prior approval by the stockholders of USFS in accordance with the provisions of Section 280G(b)(5)(B) of the Internal Revenue Code of 1986, as amended (the "Code"), and was so approved; WHEREAS, it is a condition precedent to effectuating the Merger that the Executive enter into an employment agreement with the Company in the form hereof, which agreement supersedes any previous employment agreement the Executive may have had with USFS; NOW, THEREFORE, in consideration of the promises and of the mutual covenants herein contained, it is agreed as follows: 1. EMPLOYMENT. The Company hereby agrees to employ the Executive and the Executive hereby agrees to be employed by the Company upon the terms and conditions herein set forth. 2. TERM. Employment shall be for a term commencing on the date hereof and, subject to termination under Section 8, expiring five (5) years from the date hereof. Notwithstanding the previous sentence, this Agreement and the employment of the Executive shall be automatically renewed (subject to Section 8) for successive one-year periods upon the terms and conditions set forth herein, commencing on the fifth anniversary of the date of this Agreement, and on each anniversary date thereafter, unless either party to this Agreement gives the other party written notice (in accordance with Section 17) of such party's intention to terminate this Agreement and the employment of the Executive at least twelve months prior to the end of such initial or extended term. For purposes of this Agreement, any reference to the "term" of this Agreement shall include the original term and any extension thereof. 3. DUTIES OF THE EXECUTIVE. The Executive shall serve as the President of the Company, and as such shall have primary responsibility for oversight, management and general operation of all of the food service distribution and manufacturing operations of the Company and its direct or indirect subsidiaries and shall otherwise be assigned only executive policy and management duties. The Executive shall have the additional title of Chief Executive Officer of the food service distribution division and shall be the Chief Executive Officer of Acquisition. The Executive shall report solely to the Company's Chief Executive Officer and the Company's Board of Directors (the "Board") and shall be assigned only those duties that are consistent with the Executive's position as President of the Company. The Executive shall devote substantially all of his normal working time and his best efforts, full attention and energies to the food service distribution and manufacturing business of the Company and its direct or indirect subsidiaries. The Company shall use its best efforts to cause the Executive to be elected as a member of its Board throughout the term of this Agreement and shall include him in the management slate for election as a director at every stockholders' meeting at which his term as a director would otherwise expire. The Executive may not serve as an officer of, director of, make investments in, or otherwise participate in, any other entity without the prior written consent of the Company's Chief Executive Officer or the Board; provided, that the foregoing shall not be deemed to prohibit the Executive from acquiring, directly or indirectly, solely as an investment, not more than two percent (2%) of any class of securities of any entity that are registered under Section 12(b) or 12(g) of the Securities Exchange Act of 1934, as amended, including the regulations issued thereunder; and provided further, that as long as it does not interfere with the - 2 - Executive's employment, the Executive may (a) with the prior written consent of the Company's Chief Executive Officer or the Board, serve as a director in a noncompeting company, (b) serve as an officer, director or otherwise participate in purely educational, welfare, social, religious and civic organizations, and (c) manage personal and family investments. 4. COMPENSATION. (a) During the term of this Agreement, the Company shall pay to the Executive a base salary of not less than $400,000 per annum, which base salary may be increased (but not decreased) from time to time by the Board in its sole discretion, payable at the times and in the manner consistent with the Company's general policies regarding compensation of executive employees. Such base salary shall include any salary reduction contributions to (i) any Company- sponsored plan that includes a cash-or-deferred arrangement under Section 401(k) of the Code, (ii) any other plan of deferred compensation sponsored by the Company, or (iii) any Company-sponsored "cafeteria plan" under Section 125 of the Code. The Board may from time to time authorize such additional compensation to the Executive, in cash or in property, as the Board may determine in its sole discretion to be appropriate. (b) If the Board authorizes cash incentive compensation under the Company's Senior Executive Incentive Plan or such other management incentive program or arrangement approved by the Board, the Executive shall be eligible to participate in such plan, program or arrangement under the terms and conditions applicable to executive and management employees; provided, however, that (i) the cash incentive compensation paid to the Executive for the Company's 1997 fiscal year shall be in an amount not less than 50% of the Executive's annual base salary earned for the applicable period, and (ii) the cash incentive compensation paid to the Executive for the Company's 1998 fiscal year shall be in an amount not less than 25% of the Executive's annual base salary earned for the applicable period. (c) If the Board authorizes grants under the Company's employee stock option plans in effect from time to time, the Executive shall participate in any such award in a manner commensurate with the Executive's position and level of responsibility with the Company as compared to the position and level of responsibility of other executive and management - 3 - employees of the Company as determined by the Board in its sole discretion; provided that the Executive shall vest in any such award on the same basis as other executive and management employees. Notwithstanding the foregoing, no later than the date that is three months from the date hereof, the Executive shall be granted an option under the Company's 1988 Stock Option and Compensation Plan (as amended on September 13, 1991) to purchase not less than 25,000 shares of the Company's common stock. 5. EXECUTIVE BENEFITS. (a) In addition to the compensation described in Section 4, the Company shall make available to the Executive, subject to the terms and conditions of the applicable plans, including without limitation the eligibility rules, participation for the Executive and his eligible dependents in the Company-sponsored employee benefit plans or arrangements and such other usual and customary benefits now or hereafter generally available to employees of the Company. (b) The Company shall make available to the Executive such benefits and perquisites as may be made available to senior executives of the Company, including, without limitation, equity and cash incentive programs and supplemental retirement, deferred compensation and welfare plans. (c) In addition to any life insurance coverage made available to the Executive under Section 5(a), the Company shall provide to the Executive, as the owner of the contract (or, alternatively, to his designee, as the owner) a term life insurance contract on the Executive's life in an amount not less than one million dollars ($1,000,000) and to reimburse the Executive, on an after-tax basis, for the cost of such insurance. 6. EXPENSES. The Company shall also pay or reimburse the Executive for reasonable and necessary expenses incurred by the Executive in connection with his duties on behalf of the Company in accordance with the general policies of the Company. 7. PLACE OF PERFORMANCE. In connection with his employment by the Company, unless otherwise agreed by the Executive, the Executive shall be based at offices located in Wilkes-Barre, Pennsylvania, except for travel reasonably required for Company business. - 4 - 8. TERMINATION. (a) Involuntary Termination. The Executive's employment hereunder may be terminated by the Company for any reason by written notice as provided in Section 17. The Executive's Disability (as defined herein) during the term of the Agreement shall constitute an involuntary termination of employment hereunder, unless the Board expressly extends such employment for a specified time thereafter. The Executive will be treated for purposes of this Agreement as having been involuntarily terminated by the Company if the Executive terminates his employment with the Company under the following circumstances: (i) the Company has breached any material provision of this Agreement and within 30 days after notice thereof from the Executive, the Company fails to cure such breach; (ii) a material reduction in the Executive's authority, functions, duties or responsibilities as provided in Section 3; (iii) at any time after the Company has notified the Executive pursuant to Section 2 hereof that the Company intends to terminate the Agreement and the Executive's employment (rather than allow the Agreement to automatically renew); (iv) a successor or assign (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company fails to assume liability under the Agreement; (v) the Executive fails to be elected to the Board or is removed from the Board; (vi) unless otherwise agreed by the Executive, the relocation of the Executive, his offices or the principal place where he is required to perform his duties hereunder from Wilkes-Barre, Pennsylvania; or (vii) the consistent failure by the Executive, after appropriate efforts by the parties, to endorse the Company's bona fide strategic plan as presented from time to time by the Company's Chief Executive Officer and adopted by the Board, such that a reasonable executive would conclude that the parties hold irreconcilable differences in vision and direction for the Company. (b) Voluntary Termination. The Executive may voluntarily terminate the Agreement at any time by notice to the Company as provided in Section 17. The Executive's death during the term of the Agreement shall constitute a voluntary termination of employment for purposes of eligibility for Termination Payments and Benefits as provided in Section 9. - 5 - (c) Subject to Section 9 and any benefit continuation requirements of applicable laws, in the event the Executive's employment hereunder is voluntarily or involuntarily terminated for any reason whatsoever, the compensation and benefits obligations of the Company under Sections 4 and 5 shall cease as of the effective date of such termination, except for any compensation and benefits earned or accrued but unpaid through such date. 9. TERMINATION PAYMENTS AND BENEFITS. If the Executive's employment hereunder is involuntarily terminated by the Company other than for Cause (as defined herein) prior to the end of the term of this Agreement, then the Company shall be obligated to pay to the Executive certain termination payments and make available certain benefits during the termination payment period, as follows: (a) Termination Payment Period. Termination payments shall be made for the greater of the number of years (and fractions thereof) remaining in the term of the Agreement or two years. (b) Calculation of Termination Payments. Termination payments calculated on an annual basis shall equal the sum of (i) the Executive's highest annual base salary during the three-year period prior to the Executive's termination plus (ii) the Executive's average annual cash incentive compensation award, including without limitation any award under the Senior Executive Incentive Program or any successor plan thereto, during the three-year period prior to the Executive's termination; provided, however, that the sum of all termination payments during the termination payment period as set forth above in subsection (a) shall equal at least $1,000,000; and provided further that any termination payments hereunder are subject to the provisions of subsection (g). (c) Method of Payment. Termination payments shall be paid to the Executive in accordance with the Company's regular payroll schedule. If the Executive should die while any amounts are still payable to him hereunder, all such amounts, unless otherwise provided herein, shall be paid to the Executive's designated beneficiary, or, if none, then to the Executive's estate. - 6 - (d) Benefits. Notwithstanding any provision to the contrary in any option agreement or other agreement or in any plan, all of the Executive's outstanding stock options shall immediately become exercisable, and all restrictions on any other equity awards relating to continued performance of services shall lapse. During the termination payment period as set forth above in subsection (a), the Company shall use its best efforts to maintain in full force and effect for the continued benefit of the Executive all employee welfare benefit plans and perquisite programs in which the Executive was entitled to participate immediately prior to the Executive's termination or shall arrange to make available to the Executive benefits substantially similar to those which the Executive would otherwise have been entitled to receive if his employment had not been terminated. Such welfare benefits shall be provided to the Executive on the same terms and conditions (including employee contributions toward the premium payments) under which the Executive was entitled to participate immediately prior to his termination. The Company does not guarantee a favorable tax consequence to the Executive for continued coverage and benefits under the Company-sponsored plans nor will it indemnify the Executive for such results except with respect to the life insurance plan made available under Section 5(c). Notwithstanding the foregoing, with respect to the Executive's continued coverage under the Company's Medical and Dental Plan, or a successor plan, pursuant to this provision, the Executive's "qualifying event" for purposes of the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA") shall be his date of termination from the Company. Any termination payments hereunder shall not be taken into account for purposes of any retirement plan or other benefit plan sponsored by the Company, except as otherwise expressly required by such plans or applicable law. (e) Termination for Cause. For purposes of this Agreement, "Cause" shall mean (i) the willful and continued failure by the Executive to substantially perform his duties hereunder (other than any such failure resulting from the Executive's incapacity due to physical or - 7 - mental illness), after demand for substantial performance is delivered by the Company that specifically identifies the manner in which the Company believes the Executive has not substantially performed his duties, (ii) the willful engaging by the Executive in misconduct which is materially injurious to the Company, monetarily or otherwise, or (iii)the material breach of the Confidentiality and Nonsolicitation Agreement set forth in Section 10. No act, or failure to act, on the Executive's part shall be considered "willful" unless done, or omitted to be done, by him not in good faith and without reasonable belief that his action or omission was in the best interest of the Company. Notwithstanding the foregoing, the Executive shall not be deemed to have been terminated for Cause without (x) reasonable notice to the Executive setting forth the reasons for the Company's intention to terminate for Cause, (y) an opportunity for the Executive, together with his counsel, to be heard before the Board, and (z) delivery to the Executive of a written notice of termination from the Board finding that in the good faith opinion of the Board, the Executive was guilty of conduct set forth above in clause (i), (ii) or (iii) hereof, and specifying the particulars thereof in detail. (f) Disability Defined. "Disability" shall mean the Executive's incapacity due to physical or mental illness to substantially perform his duties on a full-time basis for six (6) consecutive months and within thirty (30) days after a notice of termination is thereafter given by the Company the Executive shall not have returned to the full-time performance of the Executive's duties; provided, however, if the Executive shall not agree with a determination to terminate him because of Disability, the question of the Executive's disability shall be subject to the certification of a qualified medical doctor agreed to by the Company and the Executive or, in the event of the Executive's incapacity to designate a doctor, the Executive's legal representative. In the absence of agreement between the Company and the Executive, each party shall nominate a qualified medical doctor and the two doctors shall select a third doctor, who shall make the determination as to Disability. - 8 - (g) Effect of Long-Term Disability. If the Executive also becomes entitled to receive benefits under an insured long-term disability insurance plan ("LTD Plan") now or hereafter paid for by the Company, then the Executive's termination benefits under this Agreement (calculated on a monthly basis) shall be reduced by the amount of the benefits paid under such LTD Plan. No such reduction shall be made for benefits paid to the Executive under a personal disability income plan or such other disability income plan paid for by the Executive, whether or not the plan was obtained through a group-sponsored or Company-related program. (h) No Obligation to Mitigate. The Executive is under no obligation to mitigate damages or the amount of any payment provided for hereunder by seeking other employment or otherwise; provided, however, that the Executive's coverage under the Company's welfare benefit plans will terminate when the Executive becomes covered under any employee benefit plan made available by another employer and covering the same type of benefits. The Executive shall notify the Company within thirty (30) days after the commencement of any such benefits. (i) Forfeiture. Notwithstanding the foregoing, any right of the Executive to receive termination payments and benefits hereunder shall be forfeited to the extent of any amounts payable after any breach of Section 10, 11 or 12 by the Executive. 10. CONFIDENTIALITY AND NONSOLICITATION AGREEMENT. (a) The Executive acknowledges that in the course of his employment by the Company, he will or may have access to and become informed of confidential and secret information which is a competitive asset of the Company ("Confidential Information"), including, without limitation, (i) the terms of any agreement between the Company and any employee, customer or supplier, (ii) pricing strategy, (iii) merchandising and marketing methods, (iv) product development ideas and strategies, (v) personnel training and development programs, (vi) financial results, (vii) strategic plans and demographic analyses, (viii) proprietary computer and systems software, and (ix) any non- public information concerning the Company, its employees, suppliers or customers. The Executive agrees that he will keep all Confidential Information in strict confidence during the term of his employment by the Company and thereafter, and will never directly or indirectly - 9 - make known, divulge, reveal, furnish, make available, or use any Confidential Information (except in the course of his regular authorized duties on behalf of the Company). The Executive agrees that the obligations of confidentiality hereunder shall survive termination of his employment at the Company regardless of any actual or alleged breach by the Company of this Agreement, until and unless any such Confidential Information shall have become, through no fault of the Executive, generally known to the public or the Executive is required by law to make disclosure (after giving the Company notice and an opportunity to contest such requirement). The Executive's obligations under this Section 10 are in addition to, and not in limitation of or preemption of, all other obligations of confidentiality which the Executive may have to the Company under general legal or equitable principles. (b) Except in the ordinary course of the Company's business, the Executive has not made, nor shall at any time following the date of this Agreement, make or cause to be made, any copies, pictures, duplicates, facsimiles or other reproductions or recordings or any abstracts or summaries including or reflecting Confidential Information. All such documents and other property furnished to the Executive by the Company or otherwise acquired or developed by the Company shall at all times be the property of the Company. Upon termination of the Executive's employment with the Company, the Executive will return to the Company any such documents or other property of the Company which are in the possession, custody or control of the Executive. (c) Without the prior written consent of the Company (which may be withheld for any reason or no reason), except in the ordinary course of the Company's business, the Executive shall not at any time following the date of this Agreement use for the benefit or purposes of the Executive or for the benefit or purposes of any other person, firm, partnership, association, trust, venture, corporation or business organization, entity or enterprise engaged in the "Restricted Business" (as herein defined), or disclose in any manner to any person, firm, partnership, association, trust, venture, corporation or business organization, entity or enterprise engaged in the Restricted Business, any Confidential Information. "Restricted Business" means any business or division of a business which consists of the manufacturing or sale for distribution, or the distribution, to customers that are primarily restaurants, cafes, bars, hotels, - 10 - schools, colleges and other institutions (as the word "institution" is customarily defined in the wholesale grocery business) of (i) processed or bulk food and other groceries; (ii) restaurant and commercial kitchen supplies (such as paper products, janitorial supplies, consumable stores and supplies of every kind and nature); and (iii) restaurant and commercial kitchen equipment (such as cookware, appliances, glassware, dinnerware, smallwares and similar items), and likewise includes any business of a kind in whole or in part similar to that heretofore engaged in by the Company or any of its subsidiaries. (d) In the event of the Executive's voluntary or involuntary termination of employment with the Company, the Executive agrees that he will not in any capacity, on his own behalf or on behalf of any other firm, person or entity, undertake or assist in the solicitation of any employee of the Company, including, but not limited to, solicitation of any employee to terminate his or her employment with the Company. (e) The Executive acknowledges and agrees that a violation of the foregoing provisions of this Section 10 (referred to collectively as the Confidentiality and Nonsolicitation Agreement) that results in material detriment to the Company would cause irreparable harm to the Company, and that the Company's remedy at law for any such violation would be inadequate. In recognition of the foregoing, the Executive agrees that, in addition to any other relief afforded by law or this Agreement, including damages sustained by a breach of this Agreement and any forfeitures under Section 9, and without any necessity or proof of actual damages, the Company shall have the right to enforce this Agreement by specific remedies, which shall include, among other things, temporary and permanent injunctions, it being the understanding of the undersigned parties hereto that damages, the forfeitures described above and injunctions shall all be proper modes of relief and are not to be considered as alternative remedies. 11. POST-TERMINATION ASSISTANCE. The Executive agrees that after his employment with the Company has terminated he will provide, upon reasonable notice, such information and assistance to the Company as may reasonably be requested by the Company in connection with any litigation in which it or any of its affiliates is or may become a party; provided, however, that the Company agrees to reimburse the Executive for any related expenses, including travel expenses. - 11 - 12. COVENANT NOT TO COMPETE. During the termination payment period as set forth above in Section 9(a), if the Executive has received or is receiving benefits under Section 9, the Executive will not, without the prior written consent of the Company (which may be withheld for any reason or no reason), directly or indirectly or by action in concert with others, own, manage, operate, join, control, perform consulting services for, be employed by, participate in or be connected with any business, enterprise or other entity (or the ownership, management, operation, or control of any such business, enterprise or other entity) (a "Competing Enterprise") engaged anywhere in the United States in the "Restricted Business" (as herein defined) or any other principal line of business developed or acquired by the Company or its affiliates during the term of this Agreement (the "Other Business"). 13. ARBITRATION. Any dispute between the parties under this Agreement shall be resolved (except as provided below) through informal arbitration by an arbitrator selected under the rules of the American Arbitration Association (located in Wilkes-Barre, Pennsylvania) and the arbitration shall be conducted in that location under the rules of said Association. Each party shall each be entitled to present evidence and argument to the arbitrator. The arbitrator shall have the right only to interpret and apply the provisions of this Agreement and may not change any of its provisions. The arbitrator shall permit reasonable pre-hearing discovery of facts, to the extent necessary to establish a claim or a defense to a claim, subject to supervision by the arbitrator. The determination of the arbitrator shall be conclusive and binding upon the parties and judgment upon the same may be entered in any court having jurisdiction thereof. The arbitrator shall give written notice to the parties stating his or their determination, and shall furnish to each party a signed copy of such determination. The expenses of arbitration shall be borne equally by the Executive and the Company or as the arbitrator shall otherwise equitably determine. Notwithstanding the foregoing, the Company shall not be required to seek or participate in arbitration regarding any breach of the Executive's Confidentiality and Nonsolicitation Agreement contained in Section 10 or the Covenant Not to Compete contained in Section 12, but may pursue its remedies for such breach in a court of competent jurisdiction in Wilkes-Barre, Pennsylvania. Any arbitration or action pursuant to this Section - 12 - 13 will be governed by and construed in accordance with the substantive laws of the State of Pennsylvania, without giving effect to the principles of conflict of laws of such State. 14. AGREEMENT. This Agreement supersedes any and all other agreements, either oral or in writing, between the parties hereto, or between either or both of the parties hereto and USFS, with respect to the subject matter hereof and contains all of the covenants and agreements between the parties with respect to such subject matter. Each party to this Agreement acknowledges that no representations, inducements, promises, or other agreements, orally or otherwise, have been made by any party, or anyone acting on behalf of any party, pertaining to the subject matter hereof, which are not embodied herein, and that no other agreement, statement or promise pertaining to the subject matter hereof that is not contained in this Agreement shall be valid or binding on either party. 15. WITHHOLDING OF TAXES. The Company may withhold from any amounts payable under this Agreement all federal, state, city or other taxes as the Company is required to withhold pursuant to any law or government regulation or ruling. 16. SUCCESSORS AND BINDING AGREEMENT. (a) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation, reorganization or otherwise) to all or substantially all of the business or assets of the Company, by agreement in form and substance satisfactory to the Executive, expressly to assume and agree to perform this Agreement in the same manner and to the same extent the Company would be required to perform if no such succession had taken place. This Agreement will be binding upon and inure to the benefit of the Company and any successor to the Company, including without limitation any persons acquiring directly or indirectly all or substantially all of the business or assets of the Company whether by purchase, merger, consolidation, reorganization or otherwise (and such successor shall thereafter be deemed the "Company" for the purposes of this Agreement), but will not otherwise be assignable, transferable or delegable by the Company. (b) This Agreement will inure to the benefit of and be enforceable by the Executive's personal or legal representatives, - 13 - executors, administrators, successors, heirs, distributees and legatees. (c) This Agreement is personal in nature and neither of the parties hereto shall, without the consent of the other, assign, transfer or delegate this Agreement or any rights or obligations hereunder except as expressly provided in Sections 16(a) and 16(b). Without limiting the generality or effect of the foregoing, the Executive's right to receive payments hereunder will not be assignable, transferable or delegable, whether by pledge, creation of a security interest, or otherwise, other than by a transfer by the Executive's will or by the laws of descent and distribution and, in the event of any attempted assignment or transfer contrary to this Section 16(c), the Company shall have no liability to pay any amount so attempted to be assigned, transferred or delegated. 17. NOTICES. For all purposes of this Agreement, all communications, including without limitation notices, consents, requests or approvals, required or permitted to be given hereunder will be in writing and will be deemed to have been duly given when hand delivered or dispatched by electronic facsimile transmission (with receipt thereof confirmed), or five business days after having been mailed by United States registered or certified mail, return receipt requested, postage prepaid, or three business days after having been sent by a nationally recognized overnight courier service such as Federal Express, UPS, or Purolator, addressed to the Company (to the attention of the Secretary of the Company) at its principal executive offices and to the Executive at his principal residence, or to such other address as any party may have furnished to the other in writing and in accordance herewith, except that notices of changes of address shall be effective only upon receipt. 18. GOVERNING LAW. The validity, interpretation, construction and performance of this Agreement will be governed by and construed in accordance with the substantive laws of the State of Pennsylvania, without giving effect to the principles of conflict of laws of such State. 19. VALIDITY. If any provision of this Agreement or the application of any provision hereof to any person or circumstances is held invalid, unenforceable or otherwise illegal, the remainder of this Agreement and the application of such provision to any other person or circumstances will not be - 14 - affected, and the provision so held to be invalid, unenforceable or otherwise illegal will be reformed to the extent (and only to the extent) necessary to make it enforceable, valid or legal. 20. SURVIVAL OF PROVISIONS. Notwithstanding any other provision of this Agreement, the parties' respective rights and obligations under Sections 9, 10, 11, 13 and 21 will survive any termination or expiration of this Agreement or the termination of the Executive's employment for any reason whatsoever. 21. LEGAL FEES AND EXPENSES. Without regard to whether the Executive prevails, in whole or in part, in connection therewith, the Company will pay and be financially responsible for 100% of any and all reasonable attorneys' and related fees and expenses incurred by the Executive in connection with any dispute associated with the interpretation, enforcement or defense of Executive's rights under this Agreement by litigation or otherwise, provided that, in regard to such dispute, the Executive has not acted in bad faith or with no colorable claim of success. 22. MISCELLANEOUS. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by the Executive and the Company. No waiver by either party hereto at any time of any breach by the other party hereto or compliance with any condition or provision of this Agreement to be performed by such other party will be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. Unless otherwise noted, references to "Sections" are to sections of this Agreement. The captions used in this Agreement are designed for convenient reference only and are not to be used for the purpose of interpreting any provision of this Agreement. 23. COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same agreement. - 15 - IN WITNESS WHEREOF, the parties hereof have executed this Agreement as of the day and year first written. /s/ Frank H. Bevevino ---------------------------------- Frank H. Bevevino RYKOFF-SEXTON, INC. By:/s/ Mark Van Stekelenburg ------------------------------- Mark Van Stekelenburg Chairman and Chief Executive Officer - 16 - EX-10.15 11 EXHIBIT 10.15 Exhibit 10.15 EMPLOYMENT AGREEMENT THIS AGREEMENT (the "Agreement") is made and entered into as of the 17 day of May, 1996, by and between RYKOFF-SEXTON, INC., a Delaware corporation (the "Company"), and THOMAS G. McMULLEN (the "Executive"). WHEREAS, immediately prior to the date hereof, the Executive was President and Chief Operating Officer of US Foodservice Inc., a Delaware corporation ("USFS"); WHEREAS, pursuant to an Agreement and Plan of Merger dated February 2, 1996 (the "Merger Agreement") by and among the Company, USFS and USF Acquisition Corporation ("Acquisition"), a Delaware corporation and a wholly-owned subsidiary of the Company, as of the date hereof, USFS will be merged with and into Acquisition, with Acquisition as the surviving entity (the "Merger"); WHEREAS, this Agreement was subject to and contingent upon prior approval by the stockholders of USFS in accordance with the provisions of Section 280G(b)(5)(B) of the Internal Revenue Code of 1986, as amended (the "Code"), and was so approved; WHEREAS, it is a condition precedent to effectuating the Merger that the Executive enter into an employment agreement with the Company in the form hereof, which agreement supersedes any previous employment agreement the Executive may have had with USFS; NOW, THEREFORE, in consideration of the promises and of the mutual covenants herein contained, it is agreed as follows: 1. EMPLOYMENT. The Company hereby agrees to employ the Executive and the Executive hereby agrees to be employed by the Company upon the terms and conditions herein set forth. 2. TERM. Employment shall be for a term commencing on the date hereof and, subject to termination under Section 8, expiring three (3) years from the date hereof. Notwithstanding the previous sentence, this Agreement and the employment of the Executive shall be automatically renewed (subject to Section 8) for successive one-year periods upon the terms and conditions set forth herein, commencing on the third anniversary of the date of this Agreement, and on each anniversary date thereafter, unless either party to this Agreement gives the other party written notice (in accordance with Section 17) of such party's intention to terminate this Agreement and the employment of the Executive at least 90 days prior to the end of such initial or extended term. For purposes of this Agreement, any reference to the "term" of this Agreement shall include the original term and any extension thereof. 3. DUTIES OF THE EXECUTIVE. The Executive shall serve as President of the food service distribution division of the Company. The Executive shall report directly to the President of the Company. The Executive shall devote his full time and best efforts to the food service distribution business of the Company and any other related duties and responsibilities that may from time to time be prescribed by the President of the Company. Notwithstanding the foregoing, as long as it does not interfere with the Executive's employment hereunder, the Executive may serve as an officer, director or otherwise participate in educational, welfare, social, religious and civic organizations. 4. COMPENSATION. (a) During the term of this Agreement, the Company shall pay to the Executive a base salary of $230,000 per annum, which base salary may be adjusted from time to time by the Company, payable at the times and in the manner consistent with the Company's general policies regarding compensation of executive employees. Such base salary shall include any salary reduction contributions to (i) any Company- sponsored plan that includes a cash-or- deferred arrangement under Section 401(k) of the Code, (ii) any other plan of deferred compensation sponsored by the Company, or (iii) any Company-sponsored "cafeteria plan" under Section 125 of the Code. (b) If the Company's Board of Directors (the "Board") authorizes cash incentive compensation under the Company's Senior Executive Incentive Plan or such other management incentive program or arrangement approved by the Board, the Executive shall be eligible to participate in such plan, program or arrangement under the terms and conditions applicable to executive and management employees; provided, however, that (i) the cash incentive compensation paid to the -2- Executive for the Company's 1997 fiscal year shall be in an amount not less than 50% of the Executive's annual base salary earned for the applicable period, and (ii) the cash incentive compensation paid to the Executive for the Company's 1998 fiscal year shall be in an amount not less than 25% of the Executive's annual base salary earned for the applicable period. (c) If the Board authorizes grants under the Company's employee stock option plans in effect from time to time, the Executive shall participate in any such award in a manner commensurate with the Executive's position and level of responsibility with the Company as compared to the position and level of responsibility of other executive and management employees of the Company as determined by the Board in its sole discretion; provided that the Executive shall vest in any such award on the same basis as other executive and management employees. Notwithstanding the foregoing, no later than the date that is three months from the date hereof, the Executive shall be granted an option under the Company's 1988 Stock Option and Compensation Plan (as amended on September 13, 1991) to purchase not less than 10,000 shares of the Company's common stock. 5. EXECUTIVE BENEFITS. (a) In addition to the compensation described in Section 4, the Company shall make available to the Executive, subject to the terms and conditions of the applicable plans, including without limitation the eligibility rules, participation for the Executive and his eligible dependents in the Company-sponsored employee benefit plans or arrangements and such other usual and customary benefits now or hereafter generally available to employees of the Company. (b) The Company shall make available to the Executive such benefits and perquisites as may be made available to senior executives of the Company, including, without limitation, equity and cash incentive programs and supplemental retirement, deferred compensation and welfare plans. 6. EXPENSES. The Company shall also pay or reimburse the Executive for reasonable and necessary expenses incurred by the Executive in connection with his duties on behalf of the Company in accordance with the general policies of the Company. -3- 7. PLACE OF PERFORMANCE. In connection with his employment by the Company, unless otherwise agreed by the Executive, the Executive shall be based at offices located in Wilkes-Barre, Pennsylvania, except for travel reasonably required for Company business. 8. TERMINATION. (a) Involuntary Termination. The Executive's employment hereunder may be terminated by the Company for any reason by written notice as provided in Section 17. The Executive's Disability (as defined herein) during the term of the Agreement shall constitute an involuntary termination of employment hereunder, unless the Board expressly extends such employment for a specified time thereafter. The Executive will be treated for purposes of this Agreement as having been involuntarily terminated by the Company if the Executive terminates his employment with the Company under the following circumstances: (i) at any time after the Company has notified the Executive pursuant to Section 2 hereof that the Company intends to terminate the Agreement and the Executive's employment (rather than allow the Agreement to automatically renew); (ii) within 90 days of a reduction in the Executive's base salary as set forth in Section 4(a), unless such reduction in base salary is part of a reduction applicable generally to senior executives of the Company; or (iii) unless otherwise agreed by the Executive, the relocation of the Executive or his offices or the principal place where he is required to perform his duties hereunder from Wilkes-Barre, Pennsylvania. (b) Voluntary Termination. The Executive may voluntarily terminate the Agreement at any time by notice to the Company as provided in Section 17. The Executive's death during the term of the Agreement shall constitute a voluntary termination of employment for purposes of eligibility for Termination Payments and Benefits as provided in Section 9. (c) Subject to Section 9 and any benefit continuation requirements of applicable laws, in the event the Executive's employment hereunder is voluntarily or involuntarily terminated for any reason whatsoever, the compensation and benefits obligations of the Company under Sections 4 and 5 shall cease as of the effective date of such termination, except for any compensation and benefits earned or accrued but unpaid through such date. -4- 9. TERMINATION PAYMENTS AND BENEFITS. If the Executive's employment hereunder is involuntarily terminated by the Company other than for Cause (as defined herein) prior to the end of the term of this Agreement, subject to the condition precedent that the Executive enter into a release and settlement agreement with the Company, then the Company shall be obligated to pay to the Executive certain termination payments and make available certain benefits during the termination payment period, as follows: (a) Termination Payment Period. Termination payments shall be made for the greater of the number of years (and fractions thereof) remaining in the term of the Agreement or two years. (b) Calculation of Termination Payments. Subject to subsection (g), termination payments calculated on an annual basis shall equal the sum of (i) the Executive's highest annual base salary during the three-year period prior to the Executive's termination plus (ii) the Executive's average annual cash incentive compensation award, including without limitation any award under the Senior Executive Incentive Program or any successor plan thereto, during the three-year period prior to the Executive's termination. (c) Method of Payment. Termination payments shall be paid to the Executive in accordance with the Company's regular payroll schedule. If the Executive should die while any amounts are still payable to him hereunder, all such amounts, unless otherwise provided herein, shall be paid to the Executive's designated beneficiary, or, if none, then to the Executive's estate. (d) Benefits. Notwithstanding any provision to the contrary in any option agreement or other agreement or in any plan, all of the Executive's outstanding stock options shall immediately become exercisable, and all restrictions on any other equity awards relating to continued performance of services shall lapse. During the termination payment period as set forth above in subsection (a), the Company shall use its best efforts to maintain in full force and effect for the continued benefit of the Executive all employee welfare benefit plans and perquisite programs in which the Executive was entitled to -5- participate immediately prior to the Executive's termination or shall arrange to make available to the Executive benefits substantially similar to those which the Executive would otherwise have been entitled to receive if his employment had not been terminated. Such welfare benefits shall be provided to the Executive on the same terms and conditions (including employee contributions toward the premium payments) under which the Executive was entitled to participate immediately prior to his termination. The Company does not guarantee a favorable tax consequence to the Executive for continued coverage and benefits under the Company-sponsored plans nor will it indemnify the Executive for such results. Notwithstanding the foregoing, with respect to the Executive's continued coverage under the Company's Medical and Dental Plan, or a successor plan, pursuant to this provision, the Executive's "qualifying event" for purposes of the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA") shall be his date of termination from the Company. Any termination payments hereunder shall not be taken into account for purposes of any retirement plan or other benefit plan sponsored by the Company, except as otherwise expressly required by such plans or applicable law. (e) Termination for Cause. For purposes of this Agreement, "Cause" shall mean (i) the willful and continued failure by the Executive to substantially perform his duties hereunder (other than any such failure resulting from the Executive's incapacity due to physical or mental illness), after demand for substantial performance is delivered by the Company that specifically identifies the manner in which the Company believes the Executive has not substantially performed his duties, (ii) the willful engaging by the Executive in misconduct which is materially injurious to the Company, monetarily or otherwise, or (iii) the material breach of the Confidentiality and Nonsolicitation Agreement set forth in Section 10. -6- No act, or failure to act, on the Executive's part shall be deemed "willful" unless done, or omitted to be done, by him not in good faith and without reasonable belief that his action or omission was in the best interest of the Company. Notwithstanding the foregoing, the Executive shall not be deemed to have been terminated for Cause without (x) reasonable notice to the Executive setting forth the reasons for the Company's intention to terminate for Cause, (y) an opportunity for the Executive, together with his counsel, to be heard before the Board, and (z) delivery to the Executive of a written notice of termination from the Board finding that in the good faith opinion of the Board, the Executive was guilty of conduct set forth above in clause (i), (ii) or (iii) hereof, and specifying the particulars thereof in detail. (f) Disability Defined. "Disability" shall mean the Executive's incapacity due to physical or mental illness to substantially perform his duties on a full-time basis for six (6) consecutive months and within thirty (30) days after a notice of termination is thereafter given by the Company the Executive shall not have returned to the full-time performance of the Executive's duties; provided, however, if the Executive shall not agree with a determination to terminate him because of Disability, the question of the Executive's disability shall be subject to the certification of a qualified medical doctor agreed to by the Company and the Executive or, in the event of the Executive's incapacity to designate a doctor, the Executive's legal representative. In the absence of agreement between the Company and the Executive, each party shall nominate a qualified medical doctor and the two doctors shall select a third doctor, who shall make the determination as to Disability. (g) Effect of Long-Term Disability. If the Executive also becomes entitled to receive benefits under an insured long-term disability insurance plan ("LTD Plan") now or hereafter paid for by the Company, then the Executive's termination benefits under this Agreement (calculated on a monthly basis) shall be reduced by the amount of the benefits paid under such LTD Plan. No such reduction shall be made for benefits paid to the Executive under a personal disability income plan or such other disability income plan paid for by the Executive, whether or not the plan was obtained through a group-sponsored or Company-related program. -7- (h) No Obligation to Mitigate. The Executive is under no obligation to mitigate damages or the amount of any payment provided for hereunder by seeking other employment or otherwise; provided, however, that the Executive's coverage under the Company's welfare benefit plans will terminate when the Executive becomes covered under any employee benefit plan made available by another employer and covering the same type of benefits. The Executive shall notify the Company within thirty (30) days after the commencement of any such benefits. (i) Forfeiture. Notwithstanding the foregoing, any right of the Executive to receive termination payments and benefits hereunder shall be forfeited to the extent of any amounts payable after any breach of Section 10, 11 or 12 by the Executive. 10. CONFIDENTIALITY AND NONSOLICITATION AGREEMENT. (a) The Executive acknowledges that in the course of his employment by the Company, he will or may have access to and become informed of confidential and secret information which is a competitive asset of the Company ("Confidential Information"), including, without limitation, (i) the terms of any agreement between the Company and any employee, customer or supplier, (ii) pricing strategy, (iii) merchandising and marketing methods, (iv) product development ideas and strategies, (v) personnel training and development programs, (vi) financial results, (vii) strategic plans and demographic analyses, (viii) proprietary computer and systems software, and (ix) any non-public information concerning the Company, its employees, suppliers or customers. The Executive agrees that he will keep all Confidential Information in strict confidence during the term of his employment by the Company and thereafter, and will never directly or indirectly make known, divulge, reveal, furnish, make available, or use any Confidential Information (except in the course of his regular authorized duties on behalf of the Company). The Executive agrees that the obligations of confidentiality hereunder shall survive termination of his employment at the Company regardless of any actual or alleged breach by the Company of this Agreement, until and unless any such Confidential Information shall have become, through no fault of the Executive, generally known to the public or the Executive is required by law to make disclosure (after giving the Company notice and an opportunity to contest such requirement). The Executive's obligations under this Section 10 are in addition to, -8- and not in limitation of or preemption of, all other obligations of confidentiality which the Executive may have to the Company under general legal or equitable principles. (b) Except in the ordinary course of the Company's business, the Executive has not made, nor shall at any time following the date of this Agreement, make or cause to be made, any copies, pictures, duplicates, facsimiles or other reproductions or recordings or any abstracts or summaries including or reflecting Confidential Information. All such documents and other property furnished to the Executive by the Company or otherwise acquired or developed by the Company shall at all times be the property of the Company. Upon termination of the Executive's employment with the Company, the Executive will return to the Company any such documents or other property of the Company which are in the possession, custody or control of the Executive. (c) Without the prior written consent of the Company (which may be withheld for any reason or no reason), except in the ordinary course of the Company's business, the Executive shall not at any time following the date of this Agreement use for the benefit or purposes of the Executive or for the benefit or purposes of any other person, firm, partnership, association, trust, venture, corporation or business organization, entity or enterprise engaged in the "Restricted Business" (as herein defined), or disclose in any manner to any person, firm, partnership, association, trust, venture, corporation or business organization, entity or enterprise engaged in the Restricted Business, any Confidential Information. "Restricted Business" means any business or division of a business which consists of the manufacturing or sale for distribution, or the distribution, to customers that are primarily restaurants, cafes, bars, hotels, schools, colleges and other institutions (as the word "institution" is customarily defined in the wholesale grocery business) of (i) processed or bulk food and other groceries; (ii) restaurant and commercial kitchen supplies (such as paper products, janitorial supplies, consumable stores and supplies of every kind and nature); and (iii) restaurant and commercial kitchen equipment (such as cookware, appliances, glassware, dinnerware, smallwares and similar items), and likewise includes any business of a kind in whole or in part similar to that heretofore engaged in by the Company or any of its subsidiaries. -9- (d) In the event of the Executive's voluntary or involuntary termination of employment with the Company, the Executive agrees that he will not in any capacity, on his own behalf or on behalf of any other firm, person or entity, undertake or assist in the solicitation of any employee of the Company, including, but not limited to, solicitation of any employee to terminate his or her employment with the Company. (e) The Executive acknowledges and agrees that a violation of the foregoing provisions of this Section 10 (referred to collectively as the Confidentiality and Nonsolicitation Agreement) that results in material detriment to the Company would cause irreparable harm to the Company, and that the Company's remedy at law for any such violation would be inadequate. In recognition of the foregoing, the Executive agrees that, in addition to any other relief afforded by law or this Agreement, including damages sustained by a breach of this Agreement and any forfeitures under Section 9, and without any necessity or proof of actual damages, the Company shall have the right to enforce this Agreement by specific remedies, which shall include, among other things, temporary and permanent injunctions, it being the understanding of the undersigned parties hereto that damages, the forfeitures described above and injunctions shall all be proper modes of relief and are not to be considered as alternative remedies. 11. COVENANT NOT TO COMPETE. During the termination payment period as set forth above in Section 9(a), if the Executive has received or is receiving benefits under Section 9, the Executive shall not, without the prior written consent of the Company (which consent may be withheld for any reason or no reason), directly or indirectly or by action in concert with others, own, manage, operate, join, control, perform consulting services for, be employed by, participate in or be connected with any business, enterprise or other entity (or the ownership, management, operation, or control of any such business, enterprise or other entity) (a "Competing Enterprise") engaged anywhere in the United States in the "Restricted Business" (as herein defined) or any other principal line of business developed or acquired by the Company or its affiliates during the term of this Agreement (the "Other Business"); provided, however, that nothing in the foregoing shall prohibit the Executive from the mere ownership of securities in any such Competing Enterprise, and provided further that the foregoing prohibitions shall apply only if the annual revenues of such Competing Enterprise -10- (including any affiliate thereof) derived from the Restricted Business and the Other Business for the most recently completed fiscal year exceed $500 million. 12. POST-TERMINATION ASSISTANCE. The Executive agrees that after his employment with the Company has terminated he will provide, upon reasonable notice, such information and assistance to the Company as may reasonably be requested by the Company in connection with any litigation in which it or any of its affiliates is or may become a party; provided, however, that the Company agrees to reimburse the Executive for any related expenses, including travel expenses. 13. ARBITRATION. Any dispute between the parties under this Agreement shall be resolved (except as provided below) through informal arbitration by an arbitrator selected under the rules of the American Arbitration Association (located in Wilkes-Barre, Pennsylvania) and the arbitration shall be conducted in that location under the rules of said Association. Each party shall be entitled to present evidence and argument to the arbitrator. The arbitrator shall have the right only to interpret and apply the provisions of this Agreement and may not change any of its provisions. The arbitrator shall permit reasonable pre-hearing discovery of facts, to the extent necessary to establish a claim or a defense to a claim, subject to supervision by the arbitrator. The determination of the arbitrator shall be conclusive and binding upon the parties and judgment upon the same may be entered in any court having jurisdiction thereof. The arbitrator shall give written notice to the parties stating his or their determination, and shall furnish to each party a signed copy of such determination. The expenses of arbitration shall be borne equally by the Executive and the Company or as the arbitrator shall otherwise equitably determine. Notwithstanding the foregoing, the Company shall not be required to seek or participate in arbitration regarding any breach of the Executive's Confidentiality and Nonsolicitation Agreement contained in Section 10 or the Covenant Not to Compete contained in Section 11, but may pursue its remedies for such breach in a court of competent jurisdiction in Wilkes-Barre, Pennsylvania. Any arbitration or action pursuant to this Section 13 will be governed by and construed in accordance with the substantive laws of the State of Pennsylvania, without giving effect to the principles of conflict of laws of such State. -11- 14. AGREEMENT. This Agreement supersedes any and all other agreements, either oral or in writing, between the parties hereto, or between either or both of the parties hereto and USFS, with respect to the subject matter hereof and contains all of the covenants and agreements between the parties with respect to such subject matter. Each party to this Agreement acknowledges that no representations, inducements, promises, or other agreements, orally or otherwise, have been made by any party, or anyone acting on behalf of any party, pertaining to the subject matter hereof, which are not embodied herein, and that no other agreement, statement or promise pertaining to the subject matter hereof that is not contained in this Agreement shall be valid or binding on either party. 15. WITHHOLDING OF TAXES. The Company may withhold from any amounts payable under this Agreement all federal, state, city or other taxes as the Company is required to withhold pursuant to any law or government regulation or ruling. 16. SUCCESSORS AND BINDING AGREEMENT. (a) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation, reorganization or otherwise) to all or substantially all of the business or assets of the Company, by agreement in form and substance satisfactory to the Executive, expressly to assume and agree to perform this Agreement in the same manner and to the same extent the Company would be required to perform if no such succession had taken place. This Agreement will be binding upon and inure to the benefit of the Company and any successor to the Company, including without limitation any persons acquiring directly or indirectly all or substantially all of the business or assets of the Company whether by purchase, merger, consolidation, reorganization or otherwise (and such successor shall thereafter be deemed the "Company" for the purposes of this Agreement), but will not otherwise be assignable, transferable or delegable by the Company. (b) This Agreement will inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees and legatees. (c) This Agreement is personal in nature and neither of the parties hereto shall, without the consent of the -12- other, assign, transfer or delegate this Agreement or any rights or obligations hereunder except as expressly provided in Sections 16(a) and 16(b). Without limiting the generality or effect of the foregoing, the Executive's right to receive payments hereunder will not be assignable, transferable or delegable, whether by pledge, creation of a security interest, or otherwise, other than by a transfer by the Executive's will or by the laws of descent and distribution and, in the event of any attempted assignment or transfer contrary to this Section 16(c), the Company shall have no liability to pay any amount so attempted to be assigned, transferred or delegated. 17. NOTICES. For all purposes of this Agreement, all communications, including without limitation notices, consents, requests or approvals, required or permitted to be given hereunder will be in writing and will be deemed to have been duly given when hand delivered or dispatched by electronic facsimile transmission (with receipt thereof confirmed), or five business days after having been mailed by United States registered or certified mail, return receipt requested, postage prepaid, or three business days after having been sent by a nationally recognized overnight courier service such as Federal Express, UPS, or Purolator, addressed to the Company (to the attention of the Secretary of the Company) at its principal executive offices and to the Executive at his principal residence, or to such other address as either party may have furnished to the other in writing and in accordance herewith, except that notices of changes of address shall be effective only upon receipt. 18. GOVERNING LAW. The validity, interpretation, construction and performance of this Agreement will be governed by and construed in accordance with the substantive laws of the State of Pennsylvania, without giving effect to the principles of conflict of laws of such State. 19. VALIDITY. If any provision of this Agreement or the application of any provision hereof to any person or circumstances is held invalid, unenforceable or otherwise illegal, the remainder of this Agreement and the application of such provision to any other person or circumstances will not be affected, and the provision so held to be invalid, unenforceable or otherwise illegal will be reformed to the extent (and only to the extent) necessary to make it enforceable, valid or legal. -13- 20. SURVIVAL OF PROVISIONS. Notwithstanding any other provision of this Agreement, the parties' respective rights and obligations under Sections 9, 10, 12, 13 and 21 will survive any termination or expiration of this Agreement or the termination of the Executive's employment for any reason whatsoever. 21. LEGAL FEES AND EXPENSES. Without regard to whether the Executive prevails, in whole or in part, in connection therewith, the Company will pay and be financially responsible for 100% of any and all reasonable attorneys' and related fees and expenses incurred by the Executive in connection with any dispute associated with the interpretation, enforcement or defense of Executive's rights under this Agreement by litigation or otherwise, provided that, in regard to such dispute, the Executive has not acted in bad faith or with no colorable claim of success. 22. MISCELLANEOUS. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by the Executive and the Company. No waiver by either party hereto at any time of any breach by the other party hereto or compliance with any condition or provision of this Agreement to be performed by such other party will be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. Unless otherwise noted, references to "Sections" are to sections of this Agreement. The captions used in this Agreement are designed for convenient reference only and are not to be used for the purpose of interpreting any provision of this Agreement. 23. COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same agreement. -14- IN WITNESS WHEREOF, the parties hereof have executed this Agreement as of the day and year first written. /s/ Thomas G. McMullen ----------------------------- Thomas G. McMullen RYKOFF-SEXTON, INC. By:/s/ Mark Van Stekelenburg -------------------------- Mark Van Stekelenburg Chairman and Chief Executive Officer -15- EX-10.16 12 EXHIBIT 10.16 Exhibit 10.16 EMPLOYMENT AGREEMENT THIS AGREEMENT (the "Agreement") is made and entered into as of the 17 day of May, 1996, by and between RYKOFF-SEXTON, INC., a Delaware corporation (the "Company"), and DAVID F. McANALLY (the "Executive"). WHEREAS, immediately prior to the date hereof, the Executive was Vice President, Secretary and Chief Financial Officer of US Foodservice Inc., a Delaware corporation ("USFS"); WHEREAS, pursuant to an Agreement and Plan of Merger dated February 2, 1996 (the "Merger Agreement") by and among the Company, USFS and USF Acquisition Corporation ("Acquisition"), a Delaware corporation and a wholly-owned subsidiary of the Company, as of the date hereof, USFS will be merged with and into Acquisition, with Acquisition as the surviving entity (the "Merger"); WHEREAS, this Agreement was subject to and contingent upon prior approval by the stockholders of USFS in accordance with the provisions of Section 280G(b)(5)(B) of the Internal Revenue Code of 1986, as amended (the "Code"), and was so approved; WHEREAS, it is a condition precedent to effectuating the Merger that the Executive enter into an employment agreement with the Company in the form hereof, which agreement supersedes any previous employment agreement the Executive may have had with USFS; NOW, THEREFORE, in consideration of the promises and of the mutual covenants herein contained, it is agreed as follows: 1. EMPLOYMENT. The Company hereby agrees to employ the Executive and the Executive hereby agrees to be employed by the Company upon the terms and conditions herein set forth. 2. TERM. Employment shall be for a term commencing on the date hereof and, subject to termination under Section 7, expiring two (2) years from the date hereof. Notwithstanding the previous sentence, this Agreement and the employment of the Executive shall be automatically renewed (subject to Section 7) for successive one-year periods upon the terms and conditions set forth herein, commencing on the second anniversary of the date of this Agreement, and on each anniversary date thereafter, unless either party to this Agreement gives the other party written notice (in accordance with Section 17) of such party's intention to terminate this Agreement and the employment of the Executive at least 90 days prior to the end of such initial or extended term. For purposes of this Agreement, any reference to the "term" of this Agreement shall include the original term and any extension thereof. 3. DUTIES OF THE EXECUTIVE. The Executive shall serve as Chief Financial Officer of the food service distribution division of the Company. The Executive shall report directly to the President of the Company. The Executive shall devote his full time and best efforts to the food service distribution business of the Company and any other related duties and responsibilities that may from time to time be prescribed by the President of the Company. Notwithstanding the foregoing, as long as it does not interfere with the Executive's employment hereunder, the Executive may serve as an officer, director or otherwise participate in educational, welfare, social, religious and civic organizations. 4. COMPENSATION. (a) During the term of this Agreement, the Company shall pay to the Executive a base salary of $185,000 per annum, which base salary may be adjusted from time to time by the Company, payable at the times and in the manner consistent with the Company's general policies regarding compensation of executive employees. Such base salary shall include any salary reduction contributions to (i) any Company-sponsored plan that includes a cash-or-deferred arrangement under Section 401(k) of the Code, (ii) any other plan of deferred compensation sponsored by the Company, or (iii) any Company-sponsored "cafeteria plan" under Section 125 of the Code. (b) If the Company's Board of Directors (the "Board") authorizes cash incentive compensation under the Company's Senior Executive Incentive Plan or such other management incentive program or arrangement approved by the Board, the Executive shall be eligible to participate in such plan, program or arrangement under the terms and conditions applicable to executive and management employees; provided, however, that (i) the cash incentive compensation paid to the -2- Executive for the Company's 1997 fiscal year shall be in an amount not less than 50% of the Executive's annual base salary earned for the applicable period, and (ii) the cash incentive compensation paid to the Executive for the Company's 1998 fiscal year shall be in an amount not less than 25% of the Executive's annual base salary earned for the applicable period. (c) If the Board authorizes grants under the Company's employee stock option plans in effect from time to time, the Executive shall participate in any such award in a manner commensurate with the Executive's position and level of responsibility with the Company as compared to the position and level of responsibility of other executive and management employees of the Company as determined by the Board in its sole discretion; provided that the Executive shall vest in any such award on the same basis as other executive and management employees. Notwithstanding the foregoing, no later than the date that is three months from the date hereof, the Executive shall be granted an option under the Company's 1988 Stock Option and Compensation Plan (as amended on September 13, 1991) to purchase not less than 10,000 shares of the Company's common stock. 5. EXECUTIVE BENEFITS. (a) In addition to the compensation described in Section 4, the Company shall make available to the Executive, subject to the terms and conditions of the applicable plans, including without limitation the eligibility rules, participation for the Executive and his eligible dependents in the Company-sponsored employee benefit plans or arrangements and such other usual and customary benefits now or hereafter generally available to employees of the Company. (b) The Company shall make available to the Executive such benefits and perquisites as may be made available to senior executives in the Company's food service distribution division, including, without limitation, equity and cash incentive programs and deferred compensation and welfare plans. 6. EXPENSES. The Company shall also pay or reimburse the Executive for reasonable and necessary expenses incurred by the Executive in connection with his duties on behalf of the Company in accordance with the general policies of the Company. -3- 7. PLACE OF PERFORMANCE. In connection with his employment by the Company, unless otherwise agreed by the Executive, the Executive shall be based at offices located in Wilkes-Barre, Pennsylvania, except for travel reasonably required for Company business. 8. TERMINATION. (a) Involuntary Termination. The Executive's employment hereunder may be terminated by the Company for any reason by written notice as provided in Section 17. The Executive's Disability (as defined herein) during the term of the Agreement shall constitute an involuntary termination of employment hereunder, unless the Board expressly extends such employment for a specified time thereafter. The Executive will be treated for purposes of this Agreement as having been involuntarily terminated by the Company if the Executive terminates his employment with the Company under the following circumstances: (i) at any time after the Company has notified the Executive pursuant to Section 2 hereof that the Company intends to terminate the Agreement and the Executive's employment (rather than allow the Agreement to automatically renew); (ii) within 90 days of a reduction in the Executive's base salary as set forth in Section 4(a), unless such reduction in base salary is part of a reduction applicable generally to senior executives in the Company's food service distribution division; or (iii) unless otherwise agreed by the Executive, the relocation of the Executive or his offices or the principal place where he is required to perform his duties hereunder from Wilkes-Barre, Pennsylvania. (b) Voluntary Termination. The Executive may voluntarily terminate the Agreement at any time by notice to the Company as provided in Section 17. The Executive's death during the term of the Agreement shall constitute a voluntary termination of employment for purposes of eligibility for Termination Payments and Benefits as provided in Section 9. (c) Subject to Section 9 and any benefit continuation requirements of applicable laws, in the event the Executive's employment hereunder is voluntarily or involuntarily terminated for any reason whatsoever, the compensation and benefits obligations of the Company under Sections 4 and 5 shall cease as of the effective date of such termination, except for -4- any compensation and benefits earned or accrued but unpaid through such date. 9. TERMINATION PAYMENTS AND BENEFITS. If the Executive's employment hereunder is involuntarily terminated by the Company other than for Cause (as defined herein) prior to the end of the term of this Agreement, subject to the condition precedent that the Executive enter into a release and settlement agreement with the Company, then the Company shall be obligated to pay to the Executive certain termination payments and make available certain benefits during the termination payment period, as follows: (a) Termination Payment Period. Termination payments shall be made for the greater of the number of years (and fractions thereof) remaining in the term of the Agreement or one year. (b) Calculation of Termination Payments. Subject to subsection (g), termination payments calculated on an annual basis shall equal the sum of (i) the Executive's highest annual base salary during the three-year period prior to the Executive's termination plus (ii) the Executive's average annual cash incentive compensation award, including without limitation any award under the Senior Executive Incentive Program or any successor plan thereto, during the three-year period prior to the Executive's termination. (c) Method of Payment. Termination payments shall be paid to the Executive in accordance with the Company's regular payroll schedule. If the Executive should die while any amounts are still payable to him hereunder, all such amounts, unless otherwise provided herein, shall be paid to the Executive's designated beneficiary, or, if none, then to the Executive's estate. (d) Benefits. Notwithstanding any provision to the contrary in any option agreement or other agreement or in any plan, all of the Executive's outstanding stock options shall immediately become exercisable, and all restrictions on any other equity awards relating to continued performance of services shall lapse. During the termination payment period as set forth above in subsection (a), the Company shall use its best -5- efforts to maintain in full force and effect for the continued benefit of the Executive all employee welfare benefit plans and perquisite programs in which the Executive was entitled to participate immediately prior to the Executive's termination or shall arrange to make available to the Executive benefits substantially similar to those which the Executive would otherwise have been entitled to receive if his employment had not been terminated. Such welfare benefits shall be provided to the Executive on the same terms and conditions (including employee contributions toward the premium payments) under which the Executive was entitled to participate immediately prior to his termination. The Company does not guarantee a favorable tax consequence to the Executive for continued coverage and benefits under the Company-sponsored plans nor will it indemnify the Executive for such results. Notwithstanding the foregoing, with respect to the Executive's continued coverage under the Company's Medical and Dental Plan, or a successor plan, pursuant to this provision, the Executive's "qualifying event" for purposes of the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA") shall be his date of termination from the Company. Any termination payments hereunder shall not be taken into account for purposes of any retirement plan or other benefit plan sponsored by the Company, except as otherwise expressly required by such plans or applicable law. (e) Termination for Cause. For purposes of this Agreement, "Cause" shall mean either: (i) that the Executive shall have failed consistently to meet the objectives set forth in the Company's performance appraisal standards as applied to the Executive; or (ii) that the Executive shall have committed: (A) an intentional act of fraud, embezzlement or theft in connection with his duties or in the course of his employment with the Company; (B) intentional wrongful damage to property of the Company; -6- (C) intentional misconduct that is materially injurious to the Company, monetarily or otherwise; or (D) an intentional breach of the Confidentiality and Nonsolicitation Agreement set forth in Section 10. For purposes of this Agreement, no act or failure to act on the part of the Executive shall be deemed "intentional" if it was due primarily to an error in judgment or negligence, but shall be deemed "intentional" only if done or omitted to be done by the Executive not in good faith and without reasonable belief that his action or omission was in the best interest of the Company. (f) Disability Defined. "Disability" shall mean the Executive's incapacity due to physical or mental illness to substantially perform his duties on a full-time basis for six (6) consecutive months and within thirty (30) days after a notice of termination is thereafter given by the Company the Executive shall not have returned to the full-time performance of the Executive's duties; provided, however, if the Executive shall not agree with a determination to terminate him because of Disability, the question of the Executive's disability shall be subject to the certification of a qualified medical doctor agreed to by the Company and the Executive or, in the event of the Executive's incapacity to designate a doctor, the Executive's legal representative. In the absence of agreement between the Company and the Executive, each party shall nominate a qualified medical doctor and the two doctors shall select a third doctor, who shall make the determination as to Disability. (g) Effect of Long-Term Disability. If the Executive also becomes entitled to receive benefits under an insured long-term disability insurance plan ("LTD Plan") now or hereafter paid for by the Company, then the Executive's termination benefits under this Agreement (calculated on a monthly basis) shall be reduced by the amount of the benefits paid under such LTD Plan. No such reduction shall be made for benefits paid to the Executive under a personal disability income plan or such other disability income plan paid for by the Executive, whether or not the plan was obtained through a group-sponsored or Company-related program. -7- (h) No Obligation to Mitigate. The Executive is under no obligation to mitigate damages or the amount of any payment provided for hereunder by seeking other employment or otherwise; provided, however, that the Executive's coverage under the Company's welfare benefit plans will terminate when the Executive becomes covered under any employee benefit plan made available by another employer and covering the same type of benefits. The Executive shall notify the Company within thirty (30) days after the commencement of any such benefits. (i) Forfeiture. Notwithstanding the foregoing, any right of the Executive to receive termination payments and benefits hereunder shall be forfeited to the extent of any amounts payable after any breach of Section 10, 11 or 12 by the Executive. 10. CONFIDENTIALITY AND NONSOLICITATION AGREEMENT. (a) The Executive acknowledges that in the course of his employment by the Company, he will or may have access to and become informed of confidential and secret information which is a competitive asset of the Company ("Confidential Information"), including, without limitation, (i) the terms of any agreement between the Company and any employee, customer or supplier, (ii) pricing strategy, (iii) merchandising and marketing methods, (iv) product development ideas and strategies, (v) personnel training and development programs, (vi) financial results, (vii) strategic plans and demographic analyses, (viii) proprietary computer and systems software, and (ix) any non- public information concerning the Company, its employees, suppliers or customers. The Executive agrees that he will keep all Confidential Information in strict confidence during the term of his employment by the Company and thereafter, and will never directly or indirectly make known, divulge, reveal, furnish, make available, or use any Confidential Information (except in the course of his regular authorized duties on behalf of the Company). The Executive agrees that the obligations of confidentiality hereunder shall survive termination of his employment at the Company regardless of any actual or alleged breach by the Company of this Agreement, until and unless any such Confidential Information shall have become, through no fault of the Executive, generally known to the public or the Executive -8- is required by law to make disclosure (after giving the Company notice and an opportunity to contest such requirement). The Executive's obligations under this Section 10 are in addition to, and not in limitation of or preemption of, all other obligations of confidentiality which the Executive may have to the Company under general legal or equitable principles. (b) Except in the ordinary course of the Company's business, the Executive has not made, nor shall at any time following the date of this Agreement, make or cause to be made, any copies, pictures, duplicates, facsimiles or other reproductions or recordings or any abstracts or summaries including or reflecting Confidential Information. All such documents and other property furnished to the Executive by the Company or otherwise acquired or developed by the Company shall at all times be the property of the Company. Upon termination of the Executive's employment with the Company, the Executive will return to the Company any such documents or other property of the Company which are in the possession, custody or control of the Executive. (c) Without the prior written consent of the Company (which may be withheld for any reason or no reason), except in the ordinary course of the Company's business, the Executive shall not at any time following the date of this Agreement use for the benefit or purposes of the Executive or for the benefit or purposes of any other person, firm, partnership, association, trust, venture, corporation or business organization, entity or enterprise engaged in the "Restricted Business" (as herein defined), or disclose in any manner to any person, firm, partnership, association, trust, venture, corporation or business organization, entity or enterprise engaged in the Restricted Business, any Confidential Information. "Restricted Business" means any business or division of a business which consists of the manufacturing or sale for distribution, or the distribution, to customers that are primarily restaurants, cafes, bars, hotels, schools, colleges and other institutions (as the word "institution" is customarily defined in the wholesale grocery business) of (i) processed or bulk food and other groceries; (ii) restaurant and commercial kitchen supplies (such as paper products, janitorial supplies, consumable stores and supplies of every kind and nature); and (iii) restaurant and commercial kitchen equipment (such as cookware, appliances, glassware, dinnerware, smallwares and similar items), and likewise includes any business of a kind in -9- whole or in part similar to that heretofore engaged in by the Company or any of its subsidiaries. (d) In the event of the Executive's voluntary or involuntary termination of employment with the Company, the Executive agrees that he will not in any capacity, on his own behalf or on behalf of any other firm, person or entity, undertake or assist in the solicitation of any employee of the Company, including, but not limited to, solicitation of any employee to terminate his or her employment with the Company. (e) The Executive acknowledges and agrees that a violation of the foregoing provisions of this Section 10 (referred to collectively as the Confidentiality and Nonsolicitation Agreement) that results in material detriment to the Company would cause irreparable harm to the Company, and that the Company's remedy at law for any such violation would be inadequate. In recognition of the foregoing, the Executive agrees that, in addition to any other relief afforded by law or this Agreement, including damages sustained by a breach of this Agreement and any forfeitures under Section 9, and without any necessity or proof of actual damages, the Company shall have the right to enforce this Agreement by specific remedies, which shall include, among other things, temporary and permanent injunctions, it being the understanding of the undersigned parties hereto that damages, the forfeitures described above and injunctions shall all be proper modes of relief and are not to be considered as alternative remedies. 11. COVENANT NOT TO COMPETE. During the termination payment period as set forth above in Section 9(a), if the Executive has received or is receiving benefits under Section 9, the Executive will not, without the prior written consent of the Company (which consent may be withheld for any reason or no reason), directly or indirectly or by action in concert with others, own, manage, operate, join, control, perform consulting services for, be employed by, participate in or be connected with any business, enterprise or other entity (or the ownership, management, operation, or control of any such business, enterprise or other entity) (a "Competing Enterprise") engaged anywhere in the United States in the "Restricted Business" (as herein defined) or any other principal line of business developed or acquired by the Company or its affiliates during the term of this Agreement (the "Other Business"); provided, however, that -10- nothing in the foregoing shall prohibit the Executive from the mere ownership of securities in any such Competing Enterprise, and provided further that the foregoing prohibitions shall apply only if the annual revenues of such Competing Enterprise (including any affiliate thereof) derived from the Restricted Business and the Other Business for the most recently completed fiscal year exceed $500 million. 12. POST-TERMINATION ASSISTANCE. The Executive agrees that after his employment with the Company has terminated he will provide, upon reasonable notice, such information and assistance to the Company as may reasonably be requested by the Company in connection with any litigation in which it or any of its affiliates is or may become a party; provided, however, that the Company agrees to reimburse the Executive for any related expenses, including travel expenses. 13. ARBITRATION. Any dispute between the parties under this Agreement shall be resolved (except as provided below) through informal arbitration by an arbitrator selected under the rules of the American Arbitration Association (located in Wilkes-Barre, Pennsylvania) and the arbitration shall be conducted in that location under the rules of said Association. Each party shall be entitled to present evidence and argument to the arbitrator. The arbitrator shall have the right only to interpret and apply the provisions of this Agreement and may not change any of its provisions. The arbitrator shall permit reasonable pre-hearing discovery of facts, to the extent necessary to establish a claim or a defense to a claim, subject to supervision by the arbitrator. The determination of the arbitrator shall be conclusive and binding upon the parties and judgment upon the same may be entered in any court having jurisdiction thereof. The arbitrator shall give written notice to the parties stating his or their determination, and shall furnish to each party a signed copy of such determination. The expenses of arbitration shall be borne equally by the Executive and the Company or as the arbitrator shall otherwise equitably determine. Notwithstanding the foregoing, the Company shall not be required to seek or participate in arbitration regarding any breach of the Executive's Confidentiality and Nonsolicitation Agreement contained in Section 10 or the Covenant Not to Compete contained in Section 11, but may pursue its remedies for such breach in a court of competent jurisdiction in Wilkes-Barre, -11- Pennsylvania. Any arbitration or action pursuant to this Section 13 will be governed by and construed in accordance with the substantive laws of the State of Pennsylvania, without giving effect to the principles of conflict of laws of such State. 14. AGREEMENT. This Agreement supersedes any and all other agreements, either oral or in writing, between the parties hereto, or between either or both of the parties hereto and USFS, with respect to the subject matter hereof and contains all of the covenants and agreements between the parties with respect to such subject matter. Each party to this Agreement acknowledges that no representations, inducements, promises, or other agreements, orally or otherwise, have been made by any party, or anyone acting on behalf of any party, pertaining to the subject matter hereof, which are not embodied herein, and that no other agreement, statement or promise pertaining to the subject matter hereof that is not contained in this Agreement shall be valid or binding on either party. 15. WITHHOLDING OF TAXES. The Company may withhold from any amounts payable under this Agreement all federal, state, city or other taxes as the Company is required to withhold pursuant to any law or government regulation or ruling. 16. SUCCESSORS AND BINDING AGREEMENT. (a) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation, reorganization or otherwise) to all or substantially all of the business or assets of the Company, by agreement in form and substance satisfactory to the Executive, expressly to assume and agree to perform this Agreement in the same manner and to the same extent the Company would be required to perform if no such succession had taken place. This Agreement will be binding upon and inure to the benefit of the Company and any successor to the Company, including without limitation any persons acquiring directly or indirectly all or substantially all of the business or assets of the Company whether by purchase, merger, consolidation, reorganization or otherwise (and such successor shall thereafter be deemed the "Company" for the purposes of this Agreement), but will not otherwise be assignable, transferable or delegable by the Company. (b) This Agreement will inure to the benefit of and be enforceable by the Executive's personal or legal -12- representatives, executors, administrators, successors, heirs, distributees and legatees. (c) This Agreement is personal in nature and neither of the parties hereto shall, without the consent of the other, assign, transfer or delegate this Agreement or any rights or obligations hereunder except as expressly provided in Sections 16(a) and 16(b). Without limiting the generality or effect of the foregoing, the Executive's right to receive payments hereunder will not be assignable, transferable or delegable, whether by pledge, creation of a security interest, or otherwise, other than by a transfer by the Executive's will or by the laws of descent and distribution and, in the event of any attempted assignment or transfer contrary to this Section 16(c), the Company shall have no liability to pay any amount so attempted to be assigned, transferred or delegated. 17. NOTICES. For all purposes of this Agreement, all communications, including without limitation notices, consents, requests or approvals, required or permitted to be given hereunder will be in writing and will be deemed to have been duly given when hand delivered or dispatched by electronic facsimile transmission (with receipt thereof confirmed), or five business days after having been mailed by United States registered or certified mail, return receipt requested, postage prepaid, or three business days after having been sent by a nationally recognized overnight courier service such as Federal Express, UPS, or Purolator, addressed to the Company (to the attention of the Secretary of the Company) at its principal executive offices and to the Executive at his principal residence, or to such other address as either party may have furnished to the other in writing and in accordance herewith, except that notices of changes of address shall be effective only upon receipt. 18. GOVERNING LAW. The validity, interpretation, construction and performance of this Agreement will be governed by and construed in accordance with the substantive laws of the State of Pennsylvania, without giving effect to the principles of conflict of laws of such State. 19. VALIDITY. If any provision of this Agreement or the application of any provision hereof to any person or circumstances is held invalid, unenforceable or otherwise illegal, the remainder of this Agreement and the application of such provision to any other person or circumstances will not be -13- affected, and the provision so held to be invalid, unenforceable or otherwise illegal will be reformed to the extent (and only to the extent) necessary to make it enforceable, valid or legal. 20. SURVIVAL OF PROVISIONS. Notwithstanding any other provision of this Agreement, the parties' respective rights and obligations under Sections 9, 10, 12, 13 and 21 will survive any termination or expiration of this Agreement or the termination of the Executive's employment for any reason whatsoever. 21. LEGAL FEES AND EXPENSES. Without regard to whether the Executive prevails, in whole or in part, in connection therewith, the Company will pay and be financially responsible for 100% of any and all reasonable attorneys' and related fees and expenses incurred by the Executive in connection with any dispute associated with the interpretation, enforcement or defense of Executive's rights under this Agreement by litigation or otherwise, provided that, in regard to such dispute, the Executive has not acted in bad faith or with no colorable claim of success. 22. MISCELLANEOUS. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by the Executive and the Company. No waiver by either party hereto at any time of any breach by the other party hereto or compliance with any condition or provision of this Agreement to be performed by such other party will be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. Unless otherwise noted, references to "Sections" are to sections of this Agreement. The captions used in this Agreement are designed for convenient reference only and are not to be used for the purpose of interpreting any provision of this Agreement. 23. COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same agreement. -14- IN WITNESS WHEREOF, the parties hereof have executed this Agreement as of the day and year first written. /s/ David F. McAnally --------------------------------------- David F. McAnally RYKOFF-SEXTON, INC. By: /s/ Mark Van Stekelenburg ----------------------------------- Mark Van Stekelenburg Chairman and Chief Executive Officer -15- EX-10.30-6 13 EXHIBIT 10.30.6 Exhibit 10.30.6 WAIVER, CONSENT AND FOURTH AMENDMENT TO PARTICIPATION AGREEMENT AND LEASE AMENDMENT THIS WAIVER, CONSENT AND FOURTH AMENDMENT TO PARTICIPATION AGREEMENT AND LEASE AMENDMENT (this "Amendment"), dated as of May 17, 1996, is entered into among: (a) Rykoff-Sexton, Inc., a Delaware corporation, as Lessee (the "Lessee"), (b) BA Leasing & Capital Corporation, a California corporation, not in its individual capacity, except as otherwise expressly provided herein, but solely as Agent for the Lessors (the "Agent"), and (c) the various Lessors listed on the signature pages hereto (the "Lessors"). WHEREAS, Lessee, Agent, the Lessors and Tone Brothers, Inc., an Iowa corporation, entered into that certain Participation Agreement, dated as of April 29, 1994, as amended by that certain First Amendment to Participation Agreement, Second Amendment to Participation Agreement and Third Amendment to Participation Agreement (as so amended, the "Participation Agreement"). Capitalized terms used herein without definition shall have the meanings ascribed to them in Schedule X to the Participation Agreement; WHEREAS, simultaneously with execution of the Participation Agreement, Lessee, Agent and the Lessors entered into a Lease intended as Security (the "Lease"); WHEREAS, Lessee has entered into an Agreement and Plan of Merger with USF Acquisition Corporation, a Delaware corporation and wholly-owned subsidiary of Lessee ("Merger Sub") and US Foodservice, Inc., a Delaware corporation (the "Company") pursuant to which the Company, upon receipt of the requisite approval from the stockholders of Lessee and the stockholders of the Company, will merge with and into Merger Sub (the "Merger"); WHEREAS, Section 21.2 of the Lease prohibits merger of any other corporation with or into any subsidiary of Lessee; WHEREAS, Lessee seeks the consent of Lessors to the Merger and waiver of Section 21.2 of the Lease; WHEREAS, simultaneously with consummation of the Merger, Lessee will enter into a Credit Agreement dated as of May 17, 1996 among Lessee, Bank of America National Trust and Savings Association, as Administrative Agent, BA Securities, Inc., as Syndication Agent, The Chase Manhattan Bank, N.A., as an Agent and the other financial institutions party thereto (the "New Credit Agreement") which will replace the Credit Agreement dated as of October 25, 1993 between Bank of America National Trust and Savings Association and Lessee (the "Old Credit Agreement"); and WHEREAS, in order to affirm that the New Credit Agreement is a refinancing of the Old Credit Agreement, Lessee desires to amend the definition of "Credit Agreement" in Schedule X to the Participation Agreement and substitute therefor the definition of "New Credit Agreement" as set forth above. NOW, THEREFORE, in consideration of the foregoing premises, the mutual terms and conditions herein contained, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. WAIVER AND CONSENT. The Lessors hereby consent to the Merger and waive the provisions of Section 21.2 of the Lease insofar as such provisions would otherwise prohibit the consummation of the Merger. The waiver and consent set forth in this Amendment are strictly limited to the circumstances described herein and shall not be deemed to apply to any other matter. Except as expressly provided in Section 2 below, the Operative Agreements shall not be amended or modified in any respect and shall remain in full force and effect. 2. AMENDMENTS TO PARTICIPATION AGREEMENT. Upon the effectiveness of this Amendment pursuant to Section 5 hereof, the following amendments to the Participation Agreement shall be effective: (a) The definition of "Credit Agreement" in Schedule X to the Participation Agreement is amended by deleting such definition in its entirety and substituting the following therefor: "CREDIT AGREEMENT" shall mean the Credit Agreement dated as of May 17, 1996, among Rykoff-Sexton, Inc., Bank of American National Trust and Savings Association, as Administrative Agent, The Chase Manhattan Bank, N.A., as Documentation Agent, BA Securities, Inc., as Co-Arranger, Chase Securities, Inc., as Co- Arranger, and the other financial institutions party thereto, as such agreement is amended, modified, restated or refinanced from time to time. (b) Section 6.1 (a)(ii) of the Participation Agreement is hereby amended and restated to read in full as follows: (ii) Lessee shall not, and shall not permit any of its Subsidiaries to, without the consent of each of the Lessors: (A) consolidate with or merge with or into any other corporation (a "Merger"), unless (x) Lessee or such Subsidiary is the surviving corporation of such Merger, (y) Lessee's Consolidated Net Worth after giving effect to such Merger is no less than it was immediately prior to such Merger, and (z) immediately before and after giving effect to such Merger, no default under the Lease or any of the Prior Debt Agreements shall have occurred and be continuing, or (B) transfer, directly or indirectly, by sale, exchange, lease or other disposition, in one transaction or a series of related transactions to one or more Persons, all or substantially all of its assets or all or substantially all of the assets of any of its divisions (a "Transfer") unless immediately before and after giving effect 2 to such Transfer, no default under the Lease or any of the Prior Debt Agreements shall have occurred and be continuing, and any transaction described in this clause (ii) shall be subject in any event to Section 22.1 of the Lease; (c) Section 6.1 of the Participation Agreement is amended by adding the following new subsections (l) and (m) thereto: (l) The Lessee shall at all times comply with the covenants set forth in Sections 7.13, 7.14, 7.15, 7.16 and 7.17 of the Credit Agreement as in effect on May 17, 1996, which covenants are incorporated herein by this reference as if set forth herein in full (together with the definitions of all terms used in such Sections as set forth in the Credit Agreement on May 17, 1996); PROVIDED that no amendment to, or waiver or modification of, any such Section or definition shall be effective for purposes of this Agreement unless such amendment, waiver or modification has been consented to in writing by each of the Lessors; PROVIDED, FURTHER, that if any such amendment, waiver or modification is consented to by less than all of the Lessors and any non-consenting Lessor is a Beneficiary (as defined in subsection (m) below), such Beneficiary shall be required to draw under its Letter of Credit and its vote shall not be considered in connection with such amendment, waiver or modification. In addition, the Lessee shall deliver to the Agent and each Lessor the certificate required to be delivered under Section 6.02(b)(i) and (ii) of the Credit Agreement as in effect on May 17, 1996, at the times specified in such Section. Such certificate shall be addressed to the Agent and the Lessors, who shall be entitled to rely thereon; and (m) Not later than May 17, 1996, the Lessee shall deliver to each of Pitney Bowes Credit Corporation and Manufacturers Bank, as Lessors (each a "Beneficiary"), and maintain at all times thereafter throughout the Lease Term, an irrevocable letter of credit (each a "Letter of Credit") issued by Bank of America Illinois or such other bank as may be acceptable to each such Lessor (the "Issuer") in a form reasonably satisfactory to each such Lessor. The stated amount of the Letter of Credit issued to Manufacturers Bank shall be $2,500,000, and the stated amount of the Letter of Credit issued to Pitney Bowes Credit Corporation shall be $3,500,000. Each Letter of Credit shall have a term of at least one year, automatically renewable annually for additional one-year periods, and in any event, the Lessee shall maintain each Letter of Credit in effect for a period of not less than seven (7) days following the Termination Date (it being understood and agreed that the Lessee may from time to time deliver a substitute Letter of Credit meeting the requirements of this Section in lieu of extending the term of an outstanding Letter of Credit). In the event that any Letter of Credit would expire at any time prior to seven (7) days after the Termination Date without a substitute Letter of Credit being provided to the applicable Beneficiary at least thirty 3 (30) days prior to such expiration, such occurrence shall be deemed an Event of Default and the Beneficiary shall be entitled to draw on such Letter of Credit for the full amount thereof and apply such amount to the repayment of the obligations owing to such Beneficiary under the Operative Agreements. At the end of the seventh day following the Termination Date, the Beneficiary of each Letter of Credit shall surrender such Letter of Credit to the Lessee if it has not previously been drawn in full and delivered to the Issuer. Each Lessor expressly acknowledges and agrees that a Lessor who is a Beneficiary of a Letter of Credit may draw upon such Letter of Credit upon the occurrence of any Event of Default and that such drawing may result in the repayment of the obligations owing to such Beneficiary under the Operative Agreements prior to the repayment of the obligations owing to the other Lessors. Upon any Beneficiary's drawing under a Letter of Credit, such Beneficiary's interests as a Lessor under the Operative Agreements and to the Collateral shall terminate, except with respect to indemnities which by their terms survive the termination of the Operative Agreements. The Operative Agreements, and the obligations of the Lessee thereunder, shall remain in full force and effect with respect to the Agent and each other Lessor. 3. AMENDMENT TO LEASE. Upon the effectiveness of this Amendment pursuant to Section 5 hereof, Section 8.1(c) of the Lease is amended by adding the following phrase at the end of each Section: "or Section 6.1(l) or Section 6.1(m) of the Participation Agreement" 4. INDUCING REPRESENTATIONS. As an inducement to the Agent and the Lessors to execute and deliver this Amendment, the Lessee represents and warrants that immediately before and after giving effect to the Merger and this Amendment, no default under the Lease or any of the Prior Debt Agreements (which term for this purpose shall be deemed to include the Old Credit Agreement prior to the Merger and the New Credit Agreement after the Merger) shall have occurred and be continuing. 5. EFFECTIVENESS. This Amendment shall be effective upon the occurrence of each of the following: (a) the execution and delivery of this Amendment by all parties hereto; and (b) the payment by Lessee of all expenses incurred by the Agent and the Lessors (including the fees and expenses of counsel to the Agent and the Lessors) incurred in connection herewith. 6. APPLICABLE LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA, WITHOUT REGARD TO THE CHOICE OF LAW PROVISIONS THEREOF. 4 7. COUNTERPARTS. This Amendment may be executed in any number of counterparts and by different parties hereto on separate counterparts, each executed counterpart constituting an original but all together one agreement. 5 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed and delivered as of the date first above written. RYKOFF-SEXTON, INC., as Lessee BA LEASING & CAPITAL CORPORATION, not individually, but solely as Agent for Lessors By/s/ -------------------------------- By/s/ Name Printed:_____________________ -------------------------------- Title:____________________________ Name Printed:_____________________ Title:____________________________ By/s/ -------------------------------- Name Printed:_____________________ Title:____________________________ LESSORS: PITNEY BOWES CREDIT CORPORATION BA LEASING & CAPITAL CORPORATION By/s/ -------------------------------- By/s/ Name Printed:_____________________ -------------------------------- Title:____________________________ Name Printed:_____________________ Title:____________________________ MANUFACTURERS BANK By/s/ -------------------------------- Name Printed:_____________________ Title:____________________________ By/s/ -------------------------------- Name Printed:_____________________ Title:____________________________ 6 EX-10.37-1 14 PARTICIPATION AGREEMENT AMENDMENT NO. 1 TO AGREEMENT This AMENDMENT NO. 1 TO AGREEMENT dated as of April 8, 1996 (this "Amendment") is by and among RYKOFF-SEXTON, INC., a Delaware corporation (the "Company"), on the one hand, and the other Persons set forth on the signature pages hereto (collectively, the "ML Entities"), on the other hand. W I T N E S S E T H: WHEREAS, the parties hereto are parties to the Agreement dated as of February 2, 1996 (the "ML Agreement") which includes, as EXHIBIT A thereto, a form of Registration Rights Agreement to be entered into by the parties hereto and certain other parties at the Effective Time (as defined in the ML Agreement); and WHEREAS, the parties hereto desire to amend the ML Agreement by amending the terms of the form of Registration Rights Agreement as provided for herein. NOW, THEREFORE, in consideration of the premises and the mutual covenants hereinafter contained and other good and valuable consideration had and received, the parties hereto hereby agree as follows: Section 1. DEFINED TERMS. All capitalized terms used and not otherwise defined herein have the meanings assigned to such terms in the ML Agreement, except that the capitalized terms used in Section 2 hereof which are not otherwise defined herein shall have the meanings assigned to such terms in the Registration Rights Agreement included as EXHIBIT A to the ML Agreement. Section 2. AMENDMENT TO ML AGREEMENT. The ML Agreement is hereby amended by amending the form of Registration Rights Agreement included as EXHIBIT A thereto as follows: (a) SECTION 1 of the form of Registration Rights Agreement is hereby amended to add thereto a new definition, as follows: "Warrantholders Securities" means the securities proposed to be sold by those holders of the Company's Common Stock Purchase Warrants who exercise their registration rights pursuant to Section 20.2 thereof. (b) SECTION 3(b) of the form of Registration Rights Agreement is hereby amended by amending and restating the third sentence of Section 3(b) in its entirety as follows: "In such event and provided the lead managing underwriter has so notified the Company in writing, the shares of Company Common Stock to be included in such offering shall consist of (i) first, the securities the Company or the Initiating Holder, as the case may be, proposes to sell, and (ii) second, the number, if any, of Registrable Securities and Warrantholders Securities requested to be included in such registration that, in the opinion of such lead managing underwriter can be sold without jeopardizing the success of the offering of all the securities that the Company or the Initiating Holder, as the case may be, desires to sell for its own account, such amount to be allocated on a pro rata basis among the holders of Registrable Securities and Warrantholders Securities who have requested their securities to be so included based on the number of Registrable Securities and Warrantholders Securities that each holder thereof has requested to be so included. Section 3. MISCELLANEOUS. (a) APPLICABLE LAW. This Amendment and the legal relations between the parties hereby shall be governed by and construed in accordance with the laws of the State of New York. (b) COUNTERPARTS. This Amendment may be executed in any number of counterparts, each of which shall be deemed to be an original, but all of which together shall be deemed to be one and the same instrument. (c) SECTION HEADINGS. The descriptive headings contained herein are for convenience of reference only and shall not effect in any way the meaning or interpretation of this Amendment. (d) RATIFICATION. The ML Agreement as hereby amended is in all respects ratified and confirmed, and all of the rights and powers created thereby or thereunder shall be and remain in full force and effect. -2- IN WITNESS WHEREOF, the parties have executed this Amendment as of the date first written above. RYKOFF-SEXTON, INC. By: /s/ ------------------------------------- Mark Van Stekelenburg Chairman, President and Chief Executive Officer MERRILL LYNCH CAPITAL PARTNERS, INC. By: /s/ ---------------------------------- Name and Title: MERRILL LYNCH CAPITAL APPRECIATION PARTNERSHIP NO. B-XVIII, L.P. By: Merrill Lynch LBO Partners No. B-IV, L.P., as General Partner By: Merrill Lynch Capital Partners, Inc., as General Partner By: /s/ ---------------------------------- Name and Title: MERRILL LYNCH KECALP L.P. 1994 By: KECALP Inc., as General Partner By: /s/ ---------------------------------- Name and Title: ML OFFSHORE LBO PARTNERSHIP NO. B-XVIII By: Merrill Lynch LBO Partners No. B-IV, L.P., as Investment -3- General Partner By: Merrill Lynch Capital Partners, Inc., as General Partner By: /s/ ---------------------------------- Name and Title: ML IBK POSITIONS, INC. By: /s/ ---------------------------------- Name and Title: MLCP ASSOCIATES L.P. NO. II By: Merrill Lynch Capital Partners, Inc., as General Partner By: /s/ ---------------------------------- Name and Title: MERRILL LYNCH KECALP L.P. 1991 By: KECALP Inc., as General Partner By: /s/ ---------------------------------- Name and Title: MERRILL LYNCH CAPITAL APPRECIATION PARTNERSHIP NO. XIII, L.P. By: Merrill Lynch LBO Partners No. IV, L.P., as General Partner -4- By: Merrill Lynch Capital Partners, Inc., as General Partner By: /s/ ---------------------------------- Name and Title: ML OFFSHORE LBO PARTNERSHIP NO. XIII By: Merrill Lynch LBO Partners No. IV, L.P., as Investment General Partner By: Merrill Lynch Capital Partners, Inc., as General Partner By: /s/ ---------------------------------- Name and Title: ML EMPLOYEES LBO PARTNERSHIP NO. I, L.P. By: ML Employees LBO Managers, Inc., as General Partner By: /s/ ---------------------------------- Name and Title: MERRILL LYNCH KECALP L.P. 1987 By: KECALP Inc., as General Partner By: /s/ ---------------------------------- Name and Title: MERCHANT BANKING L.P. NO. II By: Merrill Lynch MBP Inc., as General Partner -5- By: /s/ ---------------------------------- Name and Title: MLCP ASSOCIATES L.P. NO. IV By: Merrill Lynch Capital Partners, Inc., as General Partner By: /s/ ---------------------------------- Name and Title: -6- EX-10.38 15 REGISTRATION RIGHTS AGREEMENT REGISTRATION RIGHTS AGREEMENT REGISTRATION RIGHTS AGREEMENT dated as of May 17, 1996, between RYKOFF- SEXTON, INC., a Delaware corporation (the "Company"), and the other signatories hereto listed on the signature pages hereof. W I T N E S S E T H: WHEREAS, pursuant to an Agreement and Plan of Merger dated February 2, 1996 (the "Merger Agreement"), between the Company, USF Acquisition Corporation, a Delaware corporation ("Merger Sub") and a wholly owned subsidiary of the Company, and US Foodservice Inc., a Delaware corporation ("USF"), USF has merged into Merger Sub on the date hereof, and pursuant thereto shares of Class A Common Stock, par value $.01 per share, and Class B Common Stock, par value $.01 per share, of USF ("USF Common Stock"), held by the USF stockholders have been converted into shares of Common Stock, of the par value of $.10 per share, of the Company ("Common Stock"); and WHEREAS, pursuant to an Agreement dated as of February 2, 1996, as amended by Amendment No. 1 to Agreement dated as of April 8, 1996 (as so amended, the "ML Agreement"), the Company has agreed to enter into this Agreement to provide certain registration rights to the Shareholders with respect to such shares of Common Stock. NOW, THEREFORE, it is hereby agreed as follows: 1. DEFINITIONS. Capitalized terms used but not otherwise defined herein shall have the meanings assigned to such terms in the Merger Agreement. For purposes of this Agreement, the following terms shall have the following meanings: "Affiliate" has the meaning specified in Rule 12b-2 under the Exchange Act. "Blackout Period" has the meaning specified in Section 6(a). "Business Day" means a day on which the principal offices of the SEC in Washington, D.C. are open to accept filings, or in the case of determining a date on which any payment is due, a day other than Saturday, Sunday or any day on which banks located in New York City are authorized or obligated by law to close. "Counsel to the Holders" means the single law firm from time to time representing the Holders, as appointed by the Holders of a majority in number of the Registrable Securities. "Effective Period" means, with respect to any Holder, a period commencing on the date of this Agreement and ending on the earlier of (i) the first date as of which all Registrable Securities cease to be Registrable Securities and (ii) the date on which such Holder may sell Registrable Securities in accordance with Rule 145(d)(3) under the Securities Act. "Equitable Holder" means each of the Equitable Entities (as such term in defined in the Merger Agreement) that is a holder of Registrable Securities. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Holder" means each Shareholder, and each Person who is an Affiliate of such Shareholder, that is a holder of Registrable Securities. "Initiating Holder" has the meaning specified in Section 3(a). "Inspectors" has the meaning specified in Section 7(l). "ML Holder" means each of the ML Entities (as such term in defined in the Merger Agreement), and each Affiliate of ML IBK Positions, Inc., that is a holder of Registrable Securities. "NASD" means the National Association of Securities Dealers, Inc. "Prospectus" means the prospectus included in any Registration Statement, as amended or supplemented by any prospectus supplement with respect to the terms of the offering of any portion of the Registrable Securities covered by any Registration Statement and by all other amendments and supplements to the prospectus, including post-effective amendments and all material incorporated by reference in such prospectus. "Records" has the meaning specified in Section 7(l). "Registrable Securities" means, collectively, (i) the shares of Common Stock issued to the Persons signatory hereto 2 pursuant to the Merger, (collectively, the "Shares") and (ii) any securities paid, issued or distributed in respect of any Shares by way of stock dividend or distribution or stock split or in connection with a combination of shares, recapitalization, reorganization, merger, consolidation or otherwise. Securities will cease to be Registrable Securities in accordance with Section 2 hereof. "Registration Expenses" means any and all out-of-pocket expenses incident to the Company's performance of or compliance with this Agreement, including, without limitation, (i) all SEC, NASD and securities exchange registration and filing fees, (ii) all fees and expenses of complying with state securities or blue sky laws (including reasonable fees and disbursements of counsel for any underwriters in connection with blue sky qualifications of the Registrable Securities), (iii) all printing, messenger and delivery expenses, (iv) all fees and expenses incurred in connection with the listing of the Registrable Securities on any securities exchange or automated quotation system pursuant to Section 7(h), (v) the fees and disbursements of counsel for the Company and of its independent public accountants, (vi) the reasonable fees and expenses of any special experts retained by the Company in connection with the requested registration, (vii) the reasonable fees and expenses of Counsel to the Holders and (viii) out-of-pocket expenses of underwriters customarily paid by the issuer to the extent provided for in any underwriting agreement, but excluding (x) underwriting discounts and commissions, transfer taxes, if any, and documentary stamp taxes, if any, and (y) any fees or disbursements of counsel to the Holders or any Holder (other than Counsel to the Holders). "Registration Statement" means any registration statement of the Company referred to in Section 3 or 4, including any Prospectus, amendments and supplements to any such registration statement, including post-effective amendments, and all exhibits and all material incorporated by reference in any such registration statement. "Registration Hold Period" means a Section 7(e) Period or a Section 7(m) Period. "Related Securities" means any securities of the Company similar or identical to any of the Registrable Securities, including, without limitation, Common Stock and all options, warrants, rights and other securities convertible into, or exchangeable or exercisable for, Common Stock. "Requesting Holder" has the meaning specified in Section 3(a). 3 "SEC" means the Securities and Exchange Commission. "Section 7(e) Period" has the meaning specified in Section 7(e). "Section 7(m) Period" has the meaning specified in Section 7(m). "Securities Act" means the Securities Act of 1933, as amended. "Shareholder" means each of the Persons other than the Company who are parties to this Agreement; PROVIDED, HOWEVER, that for purposes of Section 3 of this Agreement, Frank H. Bevevino shall be a Shareholder only as of such date he ceases to be an employee of the Company or any Subsidiary of the Company. "Shelf Registration" means a "shelf" registration statement on an appropriate form pursuant to Rule 415 under the Securities Act (or any successor rule that may be adopted by the SEC). "Underwritten Registration or Underwritten Offering" shall mean an underwritten offering in which securities of the Company are sold to an underwriter for reoffering to the public. "Warrantholders Securities" means the securities proposed to be sold by those holders of the Company's Common Stock Purchase Warrants who exercise their registration rights pursuant to Section 20.2 thereof. 2. SECURITIES SUBJECT TO THIS AGREEMENT. The securities entitled to the benefits of this Agreement are the Registrable Securities. For the purposes of this Agreement, any particular Registrable Securities will cease to be Registrable Securities when and to the extent that (i) a Registration Statement covering such Registrable Securities has been declared effective under the Securities Act and such Registerable Securities have been disposed of pursuant to such effective Registration Statement, (ii) such Registrable Securities are distributed to the public pursuant to Rule 144 (or any similar provision then in force) under the Securities Act, (iii) such Registrable Securities shall have been otherwise transferred or disposed of, new certificates therefor not bearing a legend restricting further transfer shall have been delivered by the Company and, at such time, subsequent transfer or disposition of such securities shall not require registration or qualification of such securities under the Securities Act or any similar state law then in force or (iv) such Registrable Securities have ceased to be outstanding. 4 3. PIGGY-BACK REGISTRATION RIGHTS. a. Whenever during the Effective Period the Company shall propose to file a registration statement under the Securities Act relating to the public offering of Company Common Stock for the Company's own account (other than pursuant to a registration statement on Form S-4 or Form S-8 or any successor forms, or filed in connection with an exchange offer or an offering of securities solely to existing stockholders or employees of the Company) or for the account of any holder of Common Stock (the "Initiating Holder") and on a form and in a manner that would permit registration of Registrable Securities for sale to the public under the Securities Act, the Company shall (i) give written notice at least 20 Business Days prior to the filing thereof to each Holder of Registrable Securities then outstanding, specifying the approximate date on which the Company proposes to file such registration statement and advising such Holder of its right to have any or all of the Registrable Securities then held by such Holder included among the securities to be covered thereby and (ii) at the written request of any such Holder given to the Company within 15 days after such Holder's receipt of written notice from the Company, include among the securities covered by such registration statement the number of Registrable Securities which such Holder ("Requesting Holder") shall have requested be so included (subject, however, to reduction in accordance with paragraph (b) of this Section). b. Each Holder of Registrable Securities desiring to participate in an offering pursuant to Section 3(a) may include shares of Company Common Stock in any Registration Statement relating to such offering to the extent that the inclusion of such shares of Company Common Stock shall not reduce the number of shares of Company Common Stock to be offered and sold by the Company or any Initiating Holder pursuant thereto. If the lead managing underwriter selected by the Company for an underwritten offering pursuant to Section 3(a) determines that marketing factors require a limitation on the number of shares of Company Common Stock to be offered and sold by Requesting Holders in such offering, there shall be included in the offering only that number of shares of Company Common Stock, if any, that such lead managing underwriter reasonably and in good faith believes will not jeopardize the success of the offering of all the shares of Company Common Stock that the Company desires to sell for its own account or that the Initiating Holder desires to sell for its own account, as the case may be. In such event and provided the lead managing underwriter has so notified the Company in writing, the shares of Company Common Stock to be included in such offering shall consist of (i) first, the securities the Company or the Initiating Holder, as the case may be, proposes to sell, and (ii) second, the number, if any, of Registrable Securities 5 and Warrantholders Securities requested to be included in such registration that, in the opinion of such lead managing underwriter can be sold without jeopardizing the success of the offering of all the securities that the Company or the Initiating Holder, as the case may be, desires to sell for its own account, such amount to be allocated on a pro rata basis among the holders of Registrable Securities and Warrantholders Securities who have requested their securities to be so included based on the number of Registrable Securities and Warrantholders Securities that each holder thereof has requested to be so included. c. Nothing in this Section 3 shall create any liability on the part of the Company to the Holders of Registrable Securities if the Company for any reason should decide not to file a registration statement proposed to be filed under Section 3(a) or to withdraw such registration statement subsequent to its filing, regardless of any action whatsoever that a Holder may have taken, whether as a result of the issuance by the Company of any notice hereunder or otherwise. d. A request by Holders to include Registrable Securities in a proposed underwritten offering pursuant to Section 3(a) shall not be deemed to be a request for a demand registration pursuant to Section 4. 4. DEMAND REGISTRATION RIGHTS. (a) Upon the written request during the Effective Period of ML Holders holding at least a majority in number of the Registrable Securities held by the ML Holders that the Company effect the registration with the SEC under and in accordance with the provisions of the Securities Act of all or part of such ML Holder's or ML Holders' Registrable Securities (which written request shall specify the aggregate number of shares of Registrable Securities requested to be registered and the means of distribution), the Company will file a Registration Statement covering such ML Holder's or ML Holders' Registrable Securities requested to be registered within 30 Business Days after receipt of such request; PROVIDED, HOWEVER, that the Company shall not be required to take any action pursuant to this Section 4: (1) if prior to the date of such request the Company shall have effected four registrations pursuant to this Section 4; (2) if the Company has effected a registration pursuant to this Section 4 within the 180-day period next preceding such request which permitted ML Holders holding Registrable Securities to register Registrable Securities; 6 (3) if the Company shall at the time have effective a Shelf Registration pursuant to which the ML Holder or ML Holders that requested registration could effect the disposition of such ML Holder's or ML Holders' Registrable Securities in the manner requested; (4) if the Registrable Securities which the Company shall have been requested to register shall have a then current market value of less than $50,000,000, unless such registration request is for all remaining Registrable Securities held by the ML Holders; or (5) during the pendency of any Blackout Period; PROVIDED, HOWEVER, that the Company shall be permitted to satisfy its obligations under this Section 4(a) by amending (to the extent permitted by applicable law) within 10 Business Days after a written request for registration, any Registration Statement previously filed by the Company under the Securities Act so that such Registration Statement (as amended) shall permit the disposition (in accordance with the intended methods of disposition specified as aforesaid) of all of the Registrable Securities for which a demand for registration has been made under this Section 4(a). If the Company shall so amend a previously filed Registration Statement, it shall be deemed to have effected a registration for purposes of this Section 4. b. The ML Holders delivering such request may distribute the Registrable Securities covered by such request by means of an underwritten offering or any other means, as determined by the ML Holders holding a majority of Registrable Securities so requested to be registered. c. Except for a Registration Statement subject to Section 4(d), a registration requested pursuant to this Section 4 shall not be deemed to be effected for purposes of this Section 4 if it has not been declared effective by the SEC or become effective in accordance with the Securities Act and the rules and regulations thereunder. d. ML Holders holding a majority in number of the Registrable Securities held by ML Holders to be included in a Registration Statement pursuant to this Section 4 may, at any time prior to the effective date of the Registration Statement relating to such registration, revoke such request by providing a written notice to the Company revoking such request. If a Registration Statement is so revoked, the ML Holders holding 7 Registrable Securities requesting the filing of such Registration Statement shall reimburse the Company for all its out-of-pocket expenses incurred in the preparation, filing and processing of the Registration Statement. e. The Company will not include any securities which are not Registrable Securities in any Registration Statement filed pursuant to a demand made under this Section 4 without the prior written consent of the ML Holders holding a majority in number of the Registrable Securities held by ML Holders and covered by such Registration Statement. 5. SELECTION OF UNDERWRITERS. In connection with any underwritten offering pursuant to a Registration Statement filed pursuant to a demand made pursuant to Section 4, ML Holders holding a majority in number of the Registrable Securities to be included in the Registration Statement shall have the right to select a lead managing underwriter or underwriters to administer the offering, which lead managing underwriter or underwriters shall be reasonably satisfactory to the Company; PROVIDED, HOWEVER, that the Company shall have the right to select a co-managing underwriter or underwriters for the offering, which co-managing underwriter or underwriters shall be reasonably satisfactory to the ML Holders holding a majority in number of the Registrable Securities held by ML Holders to be included in the Registration Statement. 6. BLACKOUT PERIODS; HOLDBACK. a. If the Company determines in good faith that the registration and distribution of Registrable Securities (i) would materially impede, delay, interfere with or otherwise adversely affect any pending financing, registration of securities, acquisition, corporate reorganization or other significant transaction involving the Company or (ii) would require disclosure of non-public material information that the Company has a bona fide business purpose for preserving as confidential, as determined by the Board of Directors of the Company in good faith, the Company shall promptly give the Holders notice of such determination and shall be entitled to postpone the filing or effectiveness of a Registration Statement for the shortest period of time reasonably required, but in any event not to exceed 180 days with respect to matters covered by clause (i) above, and not to exceed 90 days with respect to matters covered by clause (ii) above (a "Blackout Period"); PROVIDED, that a Blackout Period with respect to a registration of securities proposed by the Company may, at the election of the Company, commence on the date that is 30 days prior to the date the Company in good faith estimates will be the date of filing of, and end no later than the date, following the effective date of such registration, specified in the form of underwriting agreement relating to such registration during which 8 the Company shall be prohibited from selling, offering or otherwise disposing of Common Stock, but in no event to exceed 180 days; PROVIDED FURTHER, that the Company shall not obtain any deferral under this Section 6(a) more than once in any twelve-month period, other than normal deferrals required prior to the public release of quarterly financial results of the Company. The Company shall promptly notify each Holder of the expiration or earlier termination of a Blackout Period. b. Each Holder from time to time of more than 1% of Company Common Stock agrees by acquisition of the Registrable Securities, if so requested in writing by any managing underwriter, not to effect any public sale or distribution of such securities or Related Securities during the seven days prior to and the 120 days after the effective time of any underwritten registration by the Company (either for its own account, or for the benefit of the Holders of any securities of the Company, including Registrable Securities, in each case as to which the Holders are entitled to request to be included pursuant to Section 3) has become effective or such period of time shorter than 120 days that is sufficient and appropriate, in the opinion of the managing underwriter, in order to complete the sale and distribution of securities included in such registration. 7. REGISTRATION PROCEDURES. If and whenever the Company is required to use reasonable best efforts to effect or cause the registration of any Registrable Securities under the Securities Act as provided in this Agreement, the Company will: a. prepare and file with the SEC a Registration Statement with respect to such Registrable Securities on any form for which the Company then qualifies or which counsel for the Company shall deem appropriate, and which form shall be available for the sale of the Registrable Securities in accordance with the intended methods of distribution thereof (including, if so requested by the Holders, distributions under Rule 415 under the Securities Act pursuant to a Shelf Registration Statement), and use its reasonable best efforts to cause such Registration Statement to become and remain effective; b. prepare and file with the SEC amendments and post-effective amendments to such Registration Statement (including any Shelf Registration referred to in Section 4(a)) and such amendments and supplements to the Prospectus used in connection therewith as may be necessary to maintain the effectiveness of such registration or as may be required by the rules, regulations or instructions applicable to the registration form utilized by the Company or by the Securities Act or rules and regulations thereunder necessary 9 to keep such Registration Statement effective (i) in the case of a firm commitment underwritten public offering, until each underwriter has completed the distribution of all securities purchased by it and (ii) in the case of any other registration, for up to 90 days (or longer period in the event of a Registration Hold Period during such offering, as provided in this Section 7) and cause the Prospectus as so supplemented to be filed pursuant to Rule 424 under the Securities Act, and to otherwise comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such Registration Statement until the earlier of (x) such 90th day (or longer period) and (y) such time as all Registrable Securities covered by such Registration Statement have ceased to be Registrable Securities; c. furnish to each Holder of such Registrable Securities such number of copies of such Registration Statement and of each amendment and post-effective amendment thereto, any Prospectus or Prospectus supplement and such other documents as such Holder may reasonably request in order to facilitate the disposition of the Registrable Securities by such Holder (the Company hereby consenting to the use (subject to the limitations set forth in the last paragraph of this Section 7) of the Prospectus or any amendment or supplement thereto in connection with such disposition); d. use its reasonable best efforts to register or qualify such Registrable Securities covered by such Registration Statement under such other securities or blue sky laws of such jurisdictions as each Holder shall reasonably request, and do any and all other acts and things which may be reasonably necessary or advisable to enable such Holder to consummate the disposition in such jurisdictions of the Registrable Securities owned by such Holder, except that the Company shall not for any such purpose be required to qualify generally to do business as a foreign corporation in any jurisdiction where, but for the requirements of this Section 7(d), it would not be obligated to be so qualified, to subject itself to taxation in any such jurisdiction, or to consent to general service of process in any such jurisdiction; e. notify each Holder of any such Registrable Securities covered by such Registration Statement, at any time when a Prospectus relating thereto is required to be delivered under the Securities Act within the appropriate period mentioned in Section 7(b), of the Company's becoming aware that the Prospectus included in such Registration 10 Statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing (the period during which the Holders are required to refrain from effecting public sales or distributions in such case being referred to as a "Section 7(e) Period"), and prepare and furnish to such Holder a reasonable number of copies of an amendment to such Registration Statement or related Prospectus as may be necessary so that, as thereafter delivered to the purchasers of such Registrable Securities, such Prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing, and the time during which such Registration Statement shall remain effective pursuant to Section 7(b) shall be extended by the number of days in the Section 7(e) Period; f. notify each Holder of Registrable Securities covered by such Registration Statement at any time, (1) when the Prospectus or any Prospectus supplement or post-effective amendment has been filed, and, with respect to the Registration Statement or any post-effective amendment, when the same has become effective; (2) of any request by the SEC for amendments or supplements to the Registration Statement or the Prospectus or for additional information; (3) of the issuance by the SEC of any stop order of which the Company or its counsel is aware or should be aware suspending the effectiveness of the Registration Statement or any order preventing the use of a related Prospectus, or the initiation or any threats of any proceedings for such purposes; and (4) of the receipt by the Company of any written notification of the suspension of the qualification of any of the Registrable Securities for sale in any jurisdiction or the initiation or any threats of any proceeding for that purpose; g. otherwise use its reasonable best efforts to comply with all applicable rules and regulations of the SEC, and make available to its stockholders an earnings statement which shall satisfy the provisions of Section 11(a) of the 11 Securities Act, provided that the Company shall be deemed to have complied with this paragraph if it has complied with Rule 158 under the Securities Act; h. use its reasonable best efforts to cause all such Registrable Securities to be listed on any securities exchange or automated quotation system on which the Common Stock is then listed, if such Registrable Securities are not already so listed and if such listing is then permitted under the rules of such exchange or automated quotation system, and to provide a transfer agent and registrar for such Registrable Securities covered by such Registration Statement no later than the effective date of such Registration Statement; i. if the registration is an underwritten registration, enter into a customary underwriting agreement and in connection therewith: (1) make such representations and warranties to the underwriters in form, substance and scope as are customarily made by issuers to underwriters in comparable underwritten offerings; (2) obtain opinions of counsel to the Company (in form, scope and substance reasonably satisfactory to the managing underwriters), addressed to the underwriters, and covering the matters customarily covered in opinions requested in comparable underwritten offerings; (3) obtain "cold comfort" letters and bring-downs thereof from the Company's independent certified public accountants addressed to the underwriters, such letters to be in customary form and covering matters of the type customarily covered in "cold comfort" letters by independent accountants in connection with underwritten offerings; (4) if requested, provide indemnification in accordance with the provisions and procedures of Section 10 hereof to all parties to be indemnified pursuant to said Section; and (5) deliver such documents and certificates as may be reasonably requested by the managing underwriters to evidence compliance with clause (f) above and with any customary conditions contained in the underwriting agreement. 12 j. cooperate with the Holders of Registrable Securities covered by such Registration Statement and the managing underwriter or underwriters or agents, if any, to facilitate the timely preparation and delivery of certificates (not bearing any restrictive legends) representing the securities to be sold under such Registration Statement, and enable such securities to be in such denominations and registered in such names as the managing underwriter or underwriters or agents, if any, or such Holders may request; k. if reasonably requested by the managing underwriter or underwriters or a Holder of Registrable Securities being sold in connection with an underwritten offering, incorporate in a Prospectus supplement or post-effective amendment such information as the managing underwriters and the Holders of a majority in number of the Registrable Securities being sold agree should be included therein relating to the plan of distribution with respect to such Registrable Securities, including, without limitation, information with respect to the principal amount of Registrable Securities being sold to such underwriters, the purchase price being paid therefor by such underwriters and with respect to any other terms of the underwritten offering of the Registrable Securities to be sold in such offering and make all required filings of such Prospectus supplement or post-effective amendment as promptly as practicable upon being notified of the matters to be incorporated in such Prospectus supplement or post-effective amendment; l. provide any Holder of Registrable Securities included in such Registration Statement, any underwriter participating in any disposition pursuant to such Registration Statement and any attorney, accountant or other agent retained by any such Holder or underwriter (collectively, the "Inspectors") with reasonable access during normal business hours to appropriate officers of the Company and the Company's subsidiaries to ask questions and to obtain information reasonably requested by any such Inspector and make available for inspection all financial and other records and other information, pertinent corporate documents and properties of any of the Company and its subsidiaries and affiliates (collectively, the "Records"), as shall be reasonably necessary to enable them to exercise their due diligence responsibility; provided, however, that the Records that the Company determines, in good faith, to be confidential and which it notifies the Inspectors in writing are confidential shall not be disclosed to any Inspector unless such Inspector signs or is otherwise bound 13 by a confidentiality agreement reasonably satisfactory to the Company; and m. in the event of the issuance of any stop order of which the Company or its counsel is aware or should be aware suspending the effectiveness of the Registration Statement or of any order suspending or preventing the use of any related Prospectus or suspending the qualification of any Registrable Securities included in the Registration Statement for sale in any jurisdiction, the Company will use its reasonable best efforts promptly to obtain its withdrawal; and the period for which the Registration Statement shall be kept effective shall be extended by a number of days equal to the number of days between the issuance and withdrawal of any stop orders (a "Section 7(m) Period"). The Company may require each Holder of Registrable Securities as to which any registration is being effected to furnish the Company with such information regarding such Holder and pertinent to the disclosure requirements relating to the registration and the distribution of such securities as the Company may from time to time reasonably request. Each Holder of Registrable Securities agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in Sections 7(e) or 7(m), such Holder will forthwith discontinue disposition of Registrable Securities pursuant to the Prospectus or Registration Statement covering such Registrable Securities until such Holder's receipt of the copies of the supplemented or amended Prospectus contemplated by Section 7(e) or the withdrawal of any stop order contemplated by Section 7(m), and, if so directed by the Company, such Holder will deliver to the Company all copies, other than permanent file copies then in such Holder's possession, of the Prospectus covering such Registrable Securities at the time of receipt of such notice. 8. REGISTRATION EXPENSES. The Company will pay all Registration Expenses in connection with all registrations of Registrable Securities pursuant to Sections 3 and 4, and each Holder shall pay (x) any fees or disbursements of counsel to such Holder (other than Counsel to the Holders) and (y) all underwriting discounts and commissions and transfer taxes, if any, and documentary stamp taxes, if any, relating to the sale or disposition of such Holder's Registrable Securities pursuant to the Registration Statement. 9. REPORTS UNDER THE EXCHANGE ACT. The Company agrees to: 14 a. file with the SEC in a timely manner all reports and other documents required of the Company under the Exchange Act; and b. furnish to any Holder, during the Effective Period, forthwith upon request (A) a written statement by the Company that it has complied with the current public information and reporting requirements of Rule 144 under the Securities Act and the Exchange Act and (B) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company with the SEC under the Exchange Act. 15 10. INDEMNIFICATION; CONTRIBUTION. a. INDEMNIFICATION BY THE COMPANY. The Company agrees to indemnify and hold harmless each Holder of Registrable Securities, its officers, directors, agents, trustees, stockholders and each Person who controls such Holder (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act), against all losses, claims, damages, liabilities and expenses (including reasonable attorneys' fees, disbursements and expenses, as incurred) incurred by such party pursuant to any actual or threatened action, suit, proceeding or investigation arising out of or based upon any untrue or alleged untrue statement of a material fact contained in the Registration Statement, any Prospectus or preliminary Prospectus, or any amendment or supplement to any of the foregoing or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein (in the case of a Prospectus or a preliminary Prospectus, in light of the circumstances then existing) not misleading, except in each case insofar as the same arise out of or are based upon any such untrue statement or omission made in reliance on and in conformity with information with respect to such indemnified party furnished in writing to the Company by such indemnified party or its counsel expressly for use therein. In connection with an underwritten offering, the Company will indemnify the underwriters thereof, their officers, directors, agents, trustees, stockholders and each Person who controls such underwriters (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) to the same extent as provided above with respect to the indemnification of the Holders of Registrable Securities. Notwithstanding the foregoing provisions of this Section 10(a), the Company will not be liable to any Person who participates as an underwriter in the offering or sale of Registrable Securities or any other Person, if any, who controls such underwriter (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act), under the indemnity agreement in this Section 10(a) for any such loss, claim, damage, liability (or action or proceeding in respect thereof) or expense that arises out of such Person's failure to send or deliver a copy of the final Prospectus to the Person asserting an untrue statement or alleged untrue statement or omission or alleged omission at or prior to the written confirmation of the sale of the Registrable Securities to such Person if such statement or omission was corrected in such final Prospectus and the Company has previously furnished copies thereof to such Holder or other Person in accordance with this Agreement. b. INDEMNIFICATION BY HOLDERS OF REGISTRABLE SECURITIES. In connection with any Registration Statement filed 16 pursuant hereto, each Holder of Registrable Securities to be covered thereby will furnish to the Company in writing such information with respect to such Holder, including the name, address and the amount of Registrable Securities held by such Holder, as the Company reasonably requests for use in such Registration Statement or the related Prospectus and agrees severally and not jointly to indemnify and hold harmless the Company, all other Holders or any underwriter, as the case may be, and their respective directors, officers, agents, trustees, stockholders and controlling Persons (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act), against any losses, claims, damages, liabilities and expenses (including reasonable attorneys' fees, disbursements and expenses, as incurred), incurred by such party pursuant to any actual or threatened action, suit, proceeding or investigation arising out of or based upon any untrue or alleged untrue statement of a material fact contained in, or any omission or alleged omission of a material fact required to be stated in, such Registration Statement, Prospectus or preliminary Prospectus or any amendment or supplement to any of the foregoing or necessary to make the statements therein (in case of a Prospectus or preliminary Prospectus, in the light of the circumstances then existing) not misleading, but only to the extent that any such untrue statement or omission is made in reliance on and in conformity with information with respect to such Holder furnished in writing to the Company by such Holder or its counsel specifically for inclusion therein; PROVIDED, HOWEVER, that the liability of each Holder hereunder shall be limited to the proportion of any such loss, claim, damage, liability or expense that is equal to the proportion that the net proceeds from the sale of shares sold by such Holder under such registration statement bears to the total net proceeds from the sale of all securities sold thereunder, but not in any event to exceed the net proceeds received by such Holder from the sale of Registrable Securities covered by such Registration Statement. c. CONDUCT OF INDEMNIFICATION PROCEEDINGS. Any Person entitled to indemnification hereunder agrees to give prompt written notice to the indemnifying party after the receipt by such indemnified party of any written notice of the commencement of any action, suit, proceeding or investigation or threat thereof made in writing for which such indemnified party may claim indemnification or contribution pursuant to this Agreement (provided that failure to give such notification shall not affect the obligations of the indemnifying party pursuant to this Section 10 except to the extent the indemnifying party shall have been actually prejudiced as a result of such failure). In case any such action shall be brought against any indemnified party and it shall notify the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to 17 participate therein and, to the extent that it shall wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party, and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party shall not be liable to such indemnified party under these indemnification provisions for any legal expenses of other counsel or any other expenses, in each case subsequently incurred by such indemnified party, in connection with the defense thereof other than reasonable costs of investigation, unless in the reasonable judgement of any indemnified party a conflict of interest is likely to exist, based on the written opinion of counsel, between such indemnified party and any other of such indemnified parties with respect to such claim, in which event the indemnifying party shall not be liable for the fees and expenses of (i) more than one counsel for all Holders of Registrable Securities who are indemnified parties, selected by a majority of the Holders of Registrable Securities who are indemnified parties (which choice shall be reasonably satisfactory to the Company), (ii) more than one counsel for the underwriters or (iii) more than one counsel for the Company in connection with any one action or separate but similar or related actions. An indemnifying party who is not entitled to, or elects not to, assume the defense of a claim will not be obligated to pay the fees and expenses of more than one counsel for all parties indemnified by such indemnifying party with respect to such claims, unless in the reasonable judgment of any indemnified party based on the written opinion of counsel a conflict of interest may exist between such indemnified party and any other of such indemnified parties with respect to such claim, in which event the indemnifying party shall be obligated to pay the fees and expenses of such additional counsel or counsels. No indemnifying party, in defense of any such action, suit, proceeding or investigation, shall, except with the consent of each indemnified party, consent to the entry of any judgment or entry into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability in respect to such action, suit, proceeding or investigation to the extent the same is covered by the indemnity obligation set forth in this Section 10. No indemnified party shall consent to entry of any judgment or enter into any settlement without the consent of each indemnifying party. d. CONTRIBUTION. If the indemnification from the indemnifying party provided for in this Section 10 is unavailable to an indemnified party hereunder in respect of any losses, claims, damages, liabilities or expenses referred to herein, then the indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable 18 by such indemnified party as a result of such losses, claims, damages, liabilities and expenses in such proportion as is appropriate to reflect the relative fault of the indemnifying party and indemnified party in connection with the actions which resulted in such losses, claims, damages, liabilities and expenses, as well as any other relevant equitable considerations; PROVIDED, HOWEVER, that the liability of each Holder hereunder shall be limited to the proportion of any such loss, claim, damage, liability or expense that is equal to the proportion that the net proceeds from the sale of shares sold by such Holder under such Registration Statement bears to the total net proceeds from the sale of all securities sold thereunder, but not in any event to exceed the net proceeds received by such Holder from the sale of Registrable Securities covered by such Registration Statement. The relative fault of such indemnifying party and indemnified party shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact, has been made by, or relates to information supplied by, such indemnifying party or indemnified party, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such action. The amount paid or payable by a party as a result of the losses, claims, damages, liabilities and expenses referred to above shall be deemed to include, subject to the limitations set forth in Section 10(c), any legal and other fees and expenses reasonably incurred by such indemnified party in connection with any investigation or proceeding. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. If indemnification is available under this Section 10, the indemnifying parties shall indemnify each indemnified party to the full extent provided in Section 10(a) or (b), as the case may be, without regard to the relative fault of said indemnifying parties or indemnified party or any other equitable consideration provided for in this Section 10(d). e. The provisions of this Section 10 shall be in addition to any liability which any indemnifying party may have to any indemnified party and shall survive the termination of this Agreement. 11. PARTICIPATION IN UNDERWRITTEN OFFERINGS. No Holder of Registrable Securities may participate in any underwritten offering pursuant to Section 3 hereunder unless such Holder (a) agrees to sell such Holder's securities on the basis 19 provided in any underwriting arrangements approved by the Company in its reasonable discretion and (b) completes and executes all questionnaires, powers of attorney, custody agreements, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements. 12. MISCELLANEOUS. a. REMEDIES. The parties acknowledge that money damages are not an adequate remedy for violations of this Agreement and that any party may, in its sole discretion, apply to a court of competent jurisdiction for specific performance or injunctive or such other relief as such court may deem just and proper in order to enforce this Agreement or prevent any violation hereof and, to the extent permitted by applicable law, each party waives any objection to the imposition of such relief. b. AMENDMENTS AND WAIVERS. Except as otherwise provided herein, the provisions of this Agreement may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the Company has obtained the written consent of Holders of at least a majority in number of the Registrable Securities then outstanding. c. NOTICES. Any notice required to be given hereunder shall be sufficient if in writing, and sent by facsimile transmission and by courier service (with proof of service), hand delivery or certified or registered mail (return receipt requested and first-class postage prepaid), addressed as follows: (i) if to an ML Holder to: Merrill Lynch Capital Partners, Inc. 225 Liberty Street New York, NY 10080-6123 Attn: James V. Caruso Telecopy: (212) 236-7364 with a copy to: Marcia L. Tu, Esq. Merrill Lynch & Co., Inc. World Financial Center North Tower 250 Vesey Street New York, NY 10281-1323 Telecopy: (212) 449-3207 20 with a copy to: Bonnie Greaves, Esq. Shearman & Sterling 599 Lexington Avenue New York, NY 10022 Telecopy: (212) 848-7179 (ii) if to an Equitable Holder to: Alliance Corporate Finance Group Incorporated 1285 Avenue of the Americas 19th Floor New York, NY 10019 Attention: Corporate Finance Department Telecopy: (212) 554-1032 (iii) if to Frank H. Bevevino to: Frank H. Bevevino US Foodservice Inc. Crosscreek Pointe 1065 Highway 315, Suite 101 Wilkes-Barre, PA 18702 Telecopy: (717) 822-0909 (iv) if to the Company to: Rykoff-Sexton, Inc. 1050 Warrenville Road Lisle, IL 60532-5201 Attn: Mark Van Stekelenburg, Chairman, President and Chief Executive Officer Telecopy: (708) 971-6588 with copies to: Elizabeth C. Kitslaar, Esq. Jones, Day, Reavis & Pogue 77 West Wacker Chicago, IL 60601-1692 Telecopy: (312) 782-8585 or to such other address as any party shall specify by written notice so given, and such notice shall be deemed to have been delivered as of the date so telecommunicated, personally delivered or mailed. 21 d. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of and be binding upon the parties hereto, any Holder other than the Shareholders and any successors thereof; PROVIDED, HOWEVER, that (i) any Holder shall have agreed in writing to become a Holder under this Agreement and to be bound by the terms and conditions hereof and (ii) subject to clause (i), this Agreement and the provisions of this Agreement that are for the benefit of the Holders shall not be assignable by any Holder to any Person that is not so permitted to be a Holder, and any such purported assignment shall be null and void. e. COUNTERPARTS. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other parties. f. DESCRIPTIVE HEADINGS. The descriptive heading used herein are inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this Agreement. g. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. h. SEVERABILITY. If any term of this Agreement or the application thereof to any party or circumstance shall be held invalid or unenforceable to any extent, the remainder of this Agreement and the application of such term to the other parties or circumstances shall not be affected thereby and shall be enforced to the greatest extent permitted by applicable law, provided that in such event the parties shall negotiate in good faith in an attempt to agree to another provision (in lieu of the term or application held to be invalid or unenforceable) that will be valid and enforceable and will carry out the parties' intentions hereunder. i. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement and understanding among the parties relating to the subject matter hereof and supersedes all prior agreements and understandings relating to such subject matter. There are no representations, warranties or covenants by the parties hereto relating to such subject matter other than those expressly set forth in this Agreement. 22 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. RYKOFF-SEXTON, INC. By: /s/ ---------------------------------- Mark Van Stekelenburg Chairman, President and Chief Executive Officer MERRILL LYNCH CAPITAL APPRECIATION PARTNERSHIP NO. B-XVIII, L.P. By: Merrill Lynch LBO Partners No. B-IV, L.P., as General Partner By: Merrill Lynch Capital Partners, Inc., as General Partner By: /s/ ---------------------------------- Name and Title: MERRILL LYNCH KECALP L.P. 1994 By: KECALP Inc., as General Partner By: /s/ ---------------------------------- Name and Title: ML OFFSHORE LBO PARTNERSHIP NO. B-XVIII By: Merrill Lynch LBO Partners No. B-IV, L.P., as Investment General Partner By: Merrill Lynch Capital Partners, Inc., as General Partner 23 By: /s/ ---------------------------------- Name and Title: ML IBK POSITIONS, INC. By: /s/ ---------------------------------- Name and Title: MLCP ASSOCIATES L.P. NO. II By: Merrill Lynch Capital Partners, Inc., as General Partner By: /s/ ---------------------------------- Name and Title: MERRILL LYNCH KECALP L.P. 1991 By: KECALP Inc., as General Partner By: /s/ ---------------------------------- Name and Title: MERRILL LYNCH CAPITAL APPRECIATION PARTNERSHIP NO. XIII, L.P. By: Merrill Lynch LBO Partners No. IV, L.P., as General Partner By: Merrill Lynch Capital Partners, Inc., as General Partner By: /s/ ---------------------------------- Name and Title: 24 ML OFFSHORE LBO PARTNERSHIP NO. XIII By: Merrill Lynch LBO Partners No. IV, L.P., as Investment General Partner By: Merrill Lynch Capital Partners, Inc., as General Partner By: /s/ ---------------------------------- Name and Title: ML EMPLOYEES LBO PARTNERSHIP NO. I, L.P. By: ML Employees LBO Managers, Inc., as General Partner By: /s/ ---------------------------------- Name and Title: MERRILL LYNCH KECALP L.P. 1987 By: KECALP Inc., as General Partner By: /s/ ---------------------------------- Name and Title: MERCHANT BANKING L.P. NO. II By: Merrill Lynch MBP Inc., as General Partner By: /s/ ---------------------------------- Name and Title: MLCP ASSOCIATES L.P. NO. IV 25 By: Merrill Lynch Capital Partners, Inc., as General Partner By: /s/ ---------------------------------- Name and Title: THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES By: /s/ ---------------------------------- Name and Title: EQUITABLE DEAL FLOW FUND, L.P. By: EQUITABLE MANAGED ASSETS, L.P., as General Partner By: THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES, as General Partner By: /s/ ---------------------------------- Name and Title: EQUITABLE VARIABLE LIFE INSURANCE COMPANY By: /s/ ---------------------------------- Name and Title: /s/ --------------------------------------- Frank H. Bevevino 26 EX-10.39 16 TAX AGREEMENT STANDSTILL AGREEMENT STANDSTILL AGREEMENT (the "Agreement"), dated as of May 17, 1996, by and between RYKOFF-SEXTON, INC., a Delaware corporation ("RSI"), on the one hand, and the other Persons set forth on the signature pages hereto (collectively, the "ML Entities"), on the other hand. W I T N E S S E T H: WHEREAS, RSI, USF Acquisition Corporation, a Delaware corporation and wholly-owned subsidiary of RSI ("Merger Sub"), and US Foodservice Inc., a Delaware corporation (the "Company"), have entered into an Agreement and Plan of Merger dated February 2, 1996 (the "Merger Agreement"; capitalized terms used without definition herein having the meanings ascribed thereto in the Merger Agreement); WHEREAS, as a result of the Merger, the ML Entities will beneficially own approximately 36.4% of the issued and outstanding RSI Common Shares, depending upon the Exchange Ratio; and WHEREAS, pursuant to the Agreement dated as of February 2, 1996 (the "ML Agreement") between RSI, on the one hand, and the ML Entities, on the other hand, RSI and the ML Entities have agreed that at the Effective Time they shall enter into a Standstill Agreement in the form of this Agreement. NOW, THEREFORE, in consideration of the mutual representations, warranties, covenants and agreements set forth herein, RSI and the ML Entities hereby agree as follows: ARTICLE I DEFINITIONS For purposes of this Agreement, the following terms have the following meanings: (a) "Additional Percentage" shall mean (w) 2% of the Total Voting Power, in the event that the ML Entities and their Affiliates beneficially own Voting Securities representing in the aggregate at least 30% of the Total Voting Power; (x) 3% of the Total Voting Power, in the event that the ML Entities and their Affiliates beneficially own Voting Securities representing in the aggregate less than 30%, but at least 22%, of the Total Voting Power; (y) 4% of the Total Voting Power, in the event that the ML Entities and their Affiliates beneficially own Voting Securities representing in the aggregate less than 22%, but at least 16%, of the Total Voting Power; and (z) 5% of the Total Voting Power, in the event that the ML Entities and their Affiliates beneficially own Voting Securities representing in the aggregate less than 16%, but at least 10%, of the Total Voting Power. (b) "Affiliate" shall have the meaning set forth in Rule 12b-2 of the Securities and Exchange Act of 1934, as amended (the "Exchange Act"); PROVIDED, HOWEVER, that any corporation in which an ML Entity or any of its Affiliates owns less than a majority of the securities entitled generally to vote for the election of directors shall not be considered an Affiliate of such ML Entity or such Affiliate unless such ML Entity or such Affiliate otherwise controls such corporation. (c) "Beneficial ownership" and "beneficially own" shall have the meanings set forth in Rule 13d-3 under the Exchange Act. (d) "Continuing Director" and "Continuing Director Quorum" shall have the meanings set forth in Article Thirteenth of the Restated Certificate of Incorporation of RSI, as amended from time to time; PROVIDED, HOWEVER, that no ML Director shall constitute a Continuing Director or be counted in determining the presence of a Continuing Director Quorum. (e) "Control" shall mean, with respect to a Person or a Group, (i) beneficial ownership by such Person or Group of securities entitling it to exercise in the aggregate more than 50 percent of the votes in any election of directors or other governing body of the entity in question; or (ii) possession by such Person or Group of the power, directly or indirectly, (x) to elect a majority of the board of directors (or equivalent governing body) of the entity in question or (y) in case of a non-corporate entity, to manage or govern the business, operations or investments of any such non-corporate entity. (f) "Group" shall have the meaning comprehended by Section 13(d)(3) of the Exchange Act; PROVIDED that, solely for purposes of Section 3.1(a)(iv) of this Agreement, the ML Entities shall not by themselves constitute a "Group." (g) "Person" shall have the meaning set forth in Section 3(a)(9) of the Exchange Act. 2 (h) "ML Representative" means any natural person who has been chosen in writing, with notice thereof to RSI, by the ML Entities holding beneficial ownership of Voting Securities representing in the aggregate a majority of the Total Voting Power held by the ML Entities, Matthias B. Bowman being hereby designated as the initial ML Representative. (i) "Schedule 13D Filer" means any Person or Group which, based on its direct or indirect beneficial ownership of any Voting Securities, is, or after the acquisition of such beneficial ownership would be, required to file a statement on Schedule 13D with the SEC in accordance with Rule 13d-1 under the Exchange Act, but shall not include any Schedule 13G Filer. (j) "Schedule 13G Filer" means any Person or Group which, based on its direct or indirect beneficial ownership of any Voting Securities, is, or after the acquisition of such beneficial ownership would be, required to file a statement on Schedule 13D with the SEC in accordance with Rule 13d-1 under the Exchange Act, but which in lieu of such filing may instead file a short-form statement on Schedule 13G in accordance with such Rule. (k) "Standstill Percentage" means 36.4% of the Total Voting Power; PROVIDED that in the event that the percentage of the Total Voting Power represented by the shares of Voting Securities beneficially owned by the ML Entities and their Affiliates from time to time is less than 36.4%, then the Standstill Percentage shall be automatically reduced to the percentage of Total Voting Power represented by shares of Voting Securities beneficially owned by the ML Entities and their Affiliates from time to time; PROVIDED FURTHER, that (x) following any such reduction in the Standstill Percentage, the Standstill Percentage shall not thereafter be subject to any increase (other than as provided for in the following clause (y)), and (y) if the percentage of Total Voting Power represented by shares of Voting Securities beneficially owned by the ML Entities and their Affiliates is increased as a result of any RSI Action (as defined in Section 3.1(a)(i) of this Agreement), the Standstill Percentage shall be automatically increased to reflect such RSI Action. (l) "Total Voting Power" means, at any time, the aggregate number of votes which may be cast by holders of outstanding Voting Securities. (m) "Transfer" means sell, transfer, assign, pledge, hypothecate, give away or in any manner dispose of any Voting Securities. 3 (n) "Voting Securities" means the RSI Common Shares and any other securities (including voting preferred stock) issued by RSI which are entitled to vote generally for the election of directors of RSI, whether currently outstanding or hereafter issued (other than securities having such powers only upon the occurrence of a contingency). ARTICLE II BOARD REPRESENTATION 3.1 INITIAL BOARD REPRESENTATION. At the Effective Time, RSI will (a) take such action as may be necessary to increase the size of the Board of Directors of RSI (the "Board of Directors") to 12, and (b) use its best efforts to fill four of the vacancies thereby created in the three classes of directors with directors designated by the ML Representative (each, a "ML Director" and, collectively, the "ML Directors") in accordance with Article Thirteenth of RSI's Restated Certificate of Incorporation. Of the four initial ML directors, one shall be appointed to Class A (current term expiring in 1996), one shall be appointed to Class B (current term expiring in 1998) and two shall be appointed to Class C (current terms expiring in 1997). The ML Entities acknowledge that any designees of ML Directors who are not employees of either an ML Entity which is controlled by Merrill Lynch & Co., Inc. or an Affiliate of an ML Entity which is controlled by Merrill Lynch & Co., Inc. must be reasonably acceptable to the Continuing Directors of RSI. 3.2 CONTINUING BOARD REPRESENTATION. Until such time as the ML Entities no longer beneficially own Voting Securities representing in the aggregate at least 10% of the Total Voting Power, RSI covenants and agrees as follows: (a) except as contemplated by this Agreement or as otherwise agreed to by a majority of the ML Directors, RSI will not take or recommend to its stockholders any action which would (i) cause the Board of Directors to consist of any number of directors other than twelve directors divided into three classes of four directors each or (ii) result in any amendment to the By-Laws of RSI or the By-Laws or Regulations of any Subsidiary (as defined in Section 2.3(b) hereof) in effect on the date hereof that would impose any qualifications to the eligibility of directors of RSI or any Subsidiary to serve on any committee of the Board of Directors, any Subsidiary Board or any committee of any Subsidiary Board, except as may be required by applicable law; 4 (b) so long as the ML Entities beneficially own Voting Securities representing in the aggregate at least 34% of the Total Voting Power, RSI will use its best efforts to cause the Nominating Committee of the Board of Directors (the "Nominating Committee") (or if the Nominating Committee makes no such recommendation, the Board of Directors) to recommend for election in the applicable year in which the respective class term expires, one ML Director in Class A, one ML Director in Class B and two ML Directors in Class C, in each case as designated by the ML Representative; PROVIDED, that if despite such best efforts, any such ML Director is not elected by the stockholders of RSI, RSI shall have no further obligations under this Section 2.2(b) for the applicable year; (c) in the event that the ML Entities beneficially own Voting Securities representing in the aggregate less than 34%, but at least 27%, of the Total Voting Power, RSI will use its best efforts to cause the Nominating Committee (or if the Nominating Committee makes no such recommendation, the Board of Directors) to recommend for election in the applicable year in which the respective class term expires, one ML Director in Class A, one ML Director in Class B and one ML Director in Class C, in each case as designated by the ML Representative; PROVIDED, that if despite such best efforts, any such ML Director is not elected by the stockholders of RSI, RSI shall have no further obligations under this Section 2.2(c) for the applicable year; (d) in the event that the ML Entities beneficially own Voting Securities representing in the aggregate less than 27%, but at least 16%, of the Total Voting Power, RSI will use its best efforts to cause the Nominating Committee (or if the Nominating Committee makes no such recommendation, the Board of Directors) to recommend for election in the applicable year in which the respective class term expires, one ML Director in Class A and one ML Director in Class B or Class C, in each case as designated by the ML Representative; PROVIDED, that if despite such best efforts, any such ML Director is not elected by the stockholders of RSI, RSI shall have no further obligations under this Section 2.2(d) for the applicable year; and (e) in the event that the ML Entities beneficially own Voting Securities representing in the aggregate less than 16%, but at least 10%, of the Total Voting Power, RSI will use its best efforts to cause the Nominating Committee (or if the Nominating Committee makes no such recommendation, the Board of Directors) to recommend for election in the applicable year in which the respective class term expires, one ML Director in Class A; PROVIDED, that if despite such best efforts, such ML Director is not elected by the stockholders of RSI, RSI shall have no 5 further obligations under this Section 2.2(e) for the applicable year. 3.3 COMMITTEE REPRESENTATION; SUBSIDIARY BOARD REPRESENTATION. (a) Until such time as the ML Entities no longer beneficially own Voting Securities representing in the aggregate at least 16% of the Total Voting Power, to the extent that, and for so long as, any of the ML Directors is qualified under the then-current rules and regulations of the New York Stock Exchange ("NYSE Rules"), the rules and regulations under the Internal Revenue Code of 1986, as amended, relating to the qualification of employee stock benefit plans, the rules and regulations under Section 16(b) of the Exchange Act, including Rule 16b-3 thereunder or any successor rule, and RSI's Bylaws, RSI shall use its best efforts to cause the Board of Directors to designate one of the ML Directors to serve on each of the committees of the Board of Directors to the same extent, and on the same basis, as the other members of the Board of Directors; PROVIDED, HOWEVER, that subject to the foregoing director qualification requirements, in the event that, and for so long as, the ML Entities own Voting Securities representing in the aggregate at least 10% of the Total Voting Power, RSI shall use its best efforts to cause the Board of Directors to designate one of the ML Directors to serve on the Nominating Committee and the Management Development Compensation and Stock Option Committee of the Board of Directors to the same extent, and on the same basis, as the other members of the Board of Directors. (a) Until such time as the ML Entities no longer beneficially own Voting Securities representing in the aggregate at least 10% of the Total Voting Power, to the extent that (I) any Continuing Director who is not an officer or employee of RSI ("Outside Director") is also a director of any wholly-owned subsidiary of RSI ("Subsidiary"), and (II) the ML Directors are qualified under the Bylaws or Regulations of the relevant Subsidiary, RSI shall cause to be included (i) on the board of directors of such Subsidiary a number of ML Directors equal to the product of (x) the number of Continuing Directors on the board of directors of such Subsidiary (a "Subsidiary Board"), multiplied by (y) a quotient, the numerator of which shall be the total number of ML Directors which RSI is required to use its best efforts to cause the Nominating Committee to recommend for election pursuant to Section 2.2(b), 2.2(c), 2.2(d) or 2.2(e), as the case may be, and the denominator of which shall be twelve, PROVIDED that if the product calculated above is less than 1, then to the extent that any Outside Director is also a director of any such Subsidiary, one ML Director designated by the ML Representative shall be entitled to sit on such Subsidiary Board so long as the ML Entities beneficially own Voting Securities representing at least 10% of the Total Voting Power; and (ii) on 6 each committee of each Subsidiary Board, if an ML Director is entitled to sit on any Subsidiary Board, one ML Director designated by the ML Representative, subject to the rules and regulations described in Section 2.3(a) and qualification under the Bylaws or Regulations of the relevant Subsidiary. 3.4 REMOVAL OF DIRECTORS; VACANCIES. The ML Representative shall have the right, with cause, to request the removal from the Board of Directors of any ML Director. Any such removal shall be subject to the applicable provisions of the Restated Certificate of Incorporation and By-Laws of RSI (including, without limitation, any stockholder vote requirement), as well as applicable statutory provisions; PROVIDED that RSI will use its best efforts to cause the Continuing Directors to vote, subject to Section 2.6, in favor of such requested removal. In the event that any ML Director for any reason ceases to serve as a member of the Board of Directors during his or her term of office and at such time the ML Representative would have the right to a designation hereunder if an election for the resulting vacancy were to be held, (a) the director to fill such vacancy ("ML Director Vacancy") shall be designated by the ML Representative and, if not an employee of an ML Entity which is controlled by Merrill Lynch & Co., Inc. or an Affiliate of an ML Entity which is controlled by Merrill Lynch & Co, Inc., shall be reasonably acceptable to the Continuing Directors of RSI, and (b) such ML Director Vacancy shall be filled in accordance with Article Thirteenth of RSI's Restated Certificate of Incorporation. In the event that, and for so long as, any ML Director is a member of the Nominating Committee of the Board of Directors, the ML Entities shall cause the ML Directors to take such action as may be necessary and to vote in accordance with the recommendation of the Continuing Directors to fill any vacancies in the Board of Directors (other than an ML Director Vacancy). 3.5 RESIGNATION. In the event that the percentage of Total Voting Power represented by the Voting Securities beneficially owned in the aggregate by the ML Entities at any time decreases below the minimum percentage thresholds specified in Sections 2.2(b), (c), (d) or (e) or Sections 2.3(a) or (b), the ML Entities shall cause such number of ML Directors to resign as is necessary to adjust the number of remaining ML Directors to the number (if any) to which the ML Entities would have been entitled under such Sections if the nominations to the Board of Directors or Subsidiary Board or the selections for committees of the Board of Directors or Subsidiary Board were made at such time; PROVIDED that in the event of any such decrease below any such minimum percentage threshold, any subsequent increase in the percentage of the Total Voting Power represented in the aggregate by the Voting Securities beneficially owned by the ML Entities above such minimum percentage threshold shall not entitle the ML 7 Entities to have any additional ML Directors named or elected to the Board of Directors or any committee thereof or any Subsidiary Board or any committee thereof. 3.6 CHARTER AND BYLAWS; FIDUCIARY DUTIES. The obligations of RSI set forth in this Article II are subject to compliance with the provisions of Article Thirteenth of RSI's Restated Certificate of Incorporation and RSI's Bylaws, and the fiduciary duties of the Board of Directors and the Nominating Committee to RSI's stockholders. Nothing contained in this Article II shall require RSI to violate any such provisions or to require any director of RSI to breach any such fiduciary duty. 3.7 NO VOTING TRUST. This Agreement does not create or constitute, and shall not be construed as creating or constituting, a voting trust agreement under the Delaware General Corporation Law or any other applicable corporation law. 3.8 NOTIFICATION OF NOMINATIONS. The rights of the ML Entities, ML Directors and ML Representative and the obligations of RSI under this Article II shall be subject to compliance with Article III, Section 3a of RSI's Bylaws. 3.9 NO DUTY TO DESIGNATE; REDUCTION OF BOARD REPRESENTATION. Nothing contained in this Article II shall be construed as requiring the ML Entities to designate any ML Directors or, once designated and elected, to require any ML Director to continue to serve in office if such ML Director elects to resign. Until such time as the ML Entities no longer beneficially own Voting Securities representing in the aggregate at least 10% of the Total Voting Power, in the event of any vacancy created by the resignation or removal of an ML Director or the failure of the ML Representative to designate an ML Director, other than a vacancy created by the resignation or removal of an ML Director pursuant to Section 2.5 hereof, upon the written request of the ML Representative, RSI shall take such action as may be necessary to reduce the size of the Board of Directors to a number equal to (x) 12 (or such lesser number as exists following one or more previous reductions of the size of the Board pursuant to this Section 2.9) minus (y) the number of such vacancies, and thereafter, notwithstanding any other provisions of this Article II, the ML Entities shall have no right to designate any ML Directors to the extent of such reduction. 3.10 EFFECT OF CHANGE IN CONTROL. Notwithstanding anything to the contrary contained in this Agreement, the rights under this Article II are for the benefit of, and shall only extend to, those ML Entities which are controlled by Merrill Lynch & Co., Inc. In the event of any transaction, including any Transfer of 8 any securities or partnership interests, resulting in Merrill Lynch & Co., Inc. no longer controlling such ML Entity, such ML Entity shall no longer have any rights under this Article II and shall not be deemed to be an ML Entity for purposes of this Article II, but shall remain bound by the other provisions of this Agreement. ARTICLE III STANDSTILL RESTRICTIONS; VOTING MATTERS 3.11 STANDSTILL RESTRICTIONS. (a) During the term of this Agreement, each of the ML Entities covenants and agrees that without the prior affirmative vote of a majority of the Continuing Directors at a meeting at which a Continuing Director Quorum is present, the ML Entities shall not, and shall not permit any of their respective Affiliates to, directly or indirectly: (i) acquire, propose to acquire (or publicly announce or otherwise disclose an intention to propose to acquire) or offer to acquire, by purchase or otherwise, any Voting Securities, if the effect of such acquisition would be to increase the outstanding number of shares of Voting Securities then beneficially owned by the ML Entities and their Affiliates, in the aggregate, to an amount representing Total Voting Power in excess of the Standstill Percentage; PROVIDED that this Section 3.1(a)(i) shall not be applicable, and no ML Entity shall be obligated to dispose of Voting Securities, if the aggregate percentage of the Total Voting Power represented by Voting Securities beneficially owned by the ML Entities is increased as a result of corporate action taken solely by RSI and not caused by any action taken by any ML Entity or any Affiliate of any ML Entity ("RSI Action"); (ii) propose (or publicly announce or otherwise disclose an intention to propose), solicit, offer, seek to effect, negotiate with or provide any confidential information relating to RSI or its business to any other Person with respect to, any tender or exchange offer, merger, consolidation, share exchange, business combination, restructuring, recapitalization or similar transaction involving RSI; PROVIDED, that nothing set forth in this Section 3.1(a)(ii) shall prohibit ML Entities from soliciting, offering, seeking to effect and negotiating with any Person with respect to Transfers of Voting Securities otherwise permitted by Article IV of this Agreement; PROVIDED FURTHER, that in so doing the ML Entities shall not 9 (x) issue any press release or otherwise make any public statements (other than statements made in response to any request by any Person for confirmation by any ML Entity or any Affiliate of an ML Entity of information contained in any statement on Schedule 13D under the Exchange Act) with respect to such action other than in accordance with Section 9.14 hereof (PROVIDED that the ML Entities may, and may permit their Affiliates to, make any statement required by applicable law, including without limitation, the amendment of any statement on Schedule 13D under the Exchange Act), or (y) provide any confidential information relating to RSI or its business to any such Person. (iii) make, or in any way participate in, any "solicitation" of "proxies" to vote (as such terms are defined in Rule 14a-1 under the Exchange Act), solicit any consent with respect to the voting of any Voting Securities or become a "participant" in any "election contest" (as such terms are defined or used in Rule 14a-11 under the Exchange Act) with respect to RSI; (iv) except to the extent contemplated by the Registration Rights Agreement, form, participate in or join any Person or Group with respect to any Voting Securities (except an arrangement solely among any or all of the ML Entities), or otherwise act in concert with any third Person (other than an ML Entity) for the purpose of (x) acquiring any Voting Securities or (y) holding or disposing of Voting Securities for any purpose otherwise prohibited by this Section 3.1(a); (v) deposit any Voting Securities into a voting trust or subject any Voting Securities to any arrangement or agreement with respect to the voting thereof (except for this Agreement and except for any such arrangement solely among any or all of the ML Entities); (vi) initiate, propose or otherwise solicit stockholders for the approval of one or more stockholder proposals with respect to RSI as described in Rule 14a-8 under the Exchange Act, or induce or attempt to induce any other Person to initiate any stockholder proposal; (vii) except as specifically provided for in Article II hereof or as contemplated by Section 3.1(e), seek election to or seek to place a representative on the Board of Directors, or seek the removal of any member of the Board of Directors (other than an ML Director); 10 (viii) call or seek to have called any meeting of the stockholders of RSI for any purpose otherwise prohibited by this Section 3.1(a); (ix) take any other action to seek to control RSI; (x) demand, request or propose to amend, waive or terminate the provisions of this Section 3.1(a); or (xi) agree to do any of the foregoing, or advise, assist, encourage or persuade any third party to take any action with respect to any of the foregoing. (b) Each of the ML Entities agrees that it will notify RSI promptly if any inquiries or proposals are received by, any information is exchanged with respect to, or any negotiations or discussions are initiated or continued with, any ML Entity or, to the knowledge of any officer of Merrill Lynch Capital Partners, Inc. or ML IBK Positions, Inc., any of their respective Affiliates, regarding any matter described in Section 3.1(a) hereof; PROVIDED, HOWEVER, that the foregoing obligation is subject to any confidentiality policies of any such Affiliate of any ML Entity. The ML Entities and RSI shall mutually agree upon an appropriate response to be made to any such proposals received by any ML Entity, or, to the knowledge of any such officer, any Affiliate of such ML Entity or any such officer. (c) Notwithstanding the provisions of Section 3.1(a), Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") and its Affiliates (other than the ML Entities) may effect or recommend transactions, either as principal or as agent on behalf of third parties, in the ordinary course of Merrill Lynch's business or the business of such Affiliates, in, relating to or involving Voting Securities, including, without limitation, transactions in which Merrill Lynch or such Affiliates are acting as an investment banking organization providing advisory services, an investment advisor, an investment company, a broker or dealer in securities, as an underwriter or placement agent of securities, a market maker, a specialist, an arbitrageur or a block positioner; PROVIDED, HOWEVER, that (i) in no event shall Merrill Lynch and its Affiliates (other than the ML Entities) acquire beneficial ownership of Voting Securities representing Total Voting Power in excess of the Additional Percentage; and (ii) for purposes of this Section 3.1(c), transactions in the ordinary course of Merrill Lynch's or its Affiliates' business shall in no event be deemed to include any activities or transactions which have the purpose or effect of seeking to control or influence the management, policies or affairs of RSI, including, without limitation, through advising any Person with respect to any unsolicited bid for control of, or any other offer 11 for securities of or any business combination involving, RSI; PROVIDED, HOWEVER, that this Section 3.1(c)(ii) shall not prohibit or restrict Merrill Lynch from performing such obligations as may be required by law or the rules or other requirements of any regulatory authority. (d) The ML Entities shall not be deemed to have breached Section 3.1(a)(i) of this Agreement if (i) the ML Entities or their Affiliates inadvertently and in good faith acquire Voting Securities so as to cause the Total Voting Power represented by the Voting Securities beneficially owned by the ML Entities and their Affiliates to exceed the Standstill Percentage, and (ii) the ML Entities as soon as practicable divest a sufficient number of shares of Voting Securities beneficially owned by the ML Entities and their Affiliates so as to result in the Total Voting Power represented by the Voting Securities beneficially owned by the ML Entities and their Affiliates to be equal to or less than the Standstill Percentage. (e) Nothing contained in this Article III shall be deemed to restrict the manner in which the ML Directors may participate in deliberations or discussions of the Board of Directors or individual consultations with the Chairman of the Board or any other members of the Board of Directors, so long as such actions do not otherwise violate any provision of Section 3.1(a). 3.12 VOTING. Until such time as the ML Entities no longer beneficially own Voting Securities representing in the aggregate at least 10% of the Total Voting Power, the ML Entities will take all such action as may be required so that all Voting Securities owned by the ML Entities and their Affiliates, as a group, are (i) voted (in person or by proxy) for RSI's nominees to the Board of Directors, in accordance with the recommendation of the Nominating Committee (or, if the Nominating Committee makes no such recommendation, the Board of Directors), PROVIDED that if the ML Representative has requested representation on the Nominating Committee, RSI shall have performed its obligations described in the proviso to Section 2.3(a) hereof, PROVIDED FURTHER that if the ML Entities have a reasonable, good faith objection to any one (and only one) such nominee for election to the Board of Directors at any annual meeting of RSI stockholders (other than any nominee who was a member of the Board of Directors as of the date of the Merger Agreement), based on such nominee's personal qualifications to serve as a member of the Board of Directors ("Objectionable Nominee"), the ML Entities may abstain from, or vote against, the election of such Objectionable Nominee at such meeting, but only if (x) the board of directors of the general partner of such ML Entity determines in good faith that such action is required to fulfill its fiduciary duties to 12 the limited partners of such ML Entity under applicable law based upon the advice of outside counsel (who may be such general partner's regularly engaged outside counsel) and (y) at least two Business Days in advance of the date of mailing of the proxy statement for such annual meeting of RSI stockholders, one or more ML Directors objects to the proposed nomination of the Objectionable Nominee in writing to RSI or orally during a meeting of the Board of Directors or the Nominating Committee, and (ii) on all other matters to be voted on by holders of Voting Securities, actually voted (in person or by proxy) by the ML Entities. Each of the ML Entities shall be present, in person or by proxy, at all duly held meetings of stockholders of RSI so that all Voting Securities held by the ML Entities may be counted for the purposes of determining the presence of a quorum at such meetings. ARTICLE IV TRANSFERS; RIGHT OF FIRST REFUSAL 3.13 TRANSFERS OF VOTING SECURITIES. None of the ML Entities shall, directly or indirectly, Transfer any Voting Securities except: (a) to RSI; (b) pursuant to a merger or consolidation of RSI or pursuant to a plan of liquidation of RSI, which has been approved by the affirmative vote of a majority of the members of the Board of Directors then in office; PROVIDED that at the time of such approval the number of ML Directors then serving on the Board of Directors shall not exceed the number contemplated by Article II hereof; (c) provided that the rights of the ML Entities under this Agreement shall not transfer to the transferee of such securities, pursuant to a bona fide public offering registered under the Securities Act of 1933, as amended (the "Securities Act"), in which the ML Entities shall use commercially reasonable efforts to (i) effect as wide a distribution of such Voting Securities as is reasonably practicable, and (ii) prevent any Person or Group from acquiring pursuant to such offering beneficial ownership of Voting Securities or securities convertible into Voting Securities representing in the aggregate 5% or more of the Total Voting Power; (d) provided that the rights of the ML Entities under this Agreement shall not transfer to the transferee of such securities, pursuant to Rule 144 under the Securities Act; 13 (e) provided that the rights of the ML Entities under this Agreement shall not transfer to the transferee of such securities, pursuant to a pro rata distribution (including any such distribution pursuant to any liquidation or dissolution of any ML Entity) by any ML Entity to its partners or stockholders if no successor or distributee, as the case may be, and no Person that controls such successor or distributee, acquires from any ML Entity beneficial ownership of Voting Securities representing more than 3% of the Total Voting Power in such distribution (in each case other than any distributee which is an Affiliate of an ML Entity PROVIDED that such Affiliate shall thereafter promptly distribute all such Voting Securities to its own partners or stockholders and such partners or stockholders do not thereby acquire from such Affiliate beneficial ownership of Voting Securities representing more than 3% of the Total Voting Power in such distribution). (f) provided that the rights of the ML Entities under this Agreement shall not transfer to the transferee of such securities, (i) Transfers of Voting Securities to any Person or Group which is a Schedule 13D Filer and which, after giving effect to such Transfer, would beneficially own Voting Securities representing in the aggregate less than 5% of the Total Voting Power, and (ii) Transfers to any Person or Group which is a Schedule 13G Filer of Voting Securities representing in the aggregate less than 10% of the Total Voting Power; (g) provided that (i) the rights of the ML Entities under this Agreement shall not transfer to the transferee of such securities, and (ii) the Transfer is made on or after January 1, 2000 in connection with the required dissolution of any ML Entity, Transfers of Voting Securities to any Person or Group (A) which, after giving effect to such Transfer would beneficially own Voting Securities representing in the aggregate less than the greater of (x) 15% of the Total Voting Power or (y) such other percentage of the Total Voting Power as would make such Person or Group an "Acquiring Person" under RSI's shareholders' rights plan or (B) approved by the prior affirmative vote of a majority of the Continuing Directors at a meeting at which a Continuing Director Quorum is present; (h) pursuant to a tender offer or exchange offer that the Board of Directors, by action taken by the affirmative vote of a majority of the members of the Board of Directors then in office, has determined not to oppose; or (i) in accordance with the provisions of Section 4.2. 14 3.14 RIGHT OF FIRST REFUSAL. Except as otherwise permitted by Section 4.1, if any ML Entity or ML Entities (each a "Selling ML Entity" and, collectively, the "Selling ML Entities") shall receive an offer from, or have entered into any agreement or understanding with, a third party or parties to purchase or otherwise acquire Voting Securities from such Selling ML Entity, such Selling ML Entity shall have the right, provided that the rights of such Selling ML Entity under this Agreement shall not transfer to such third party or parties, to Transfer the amount of Voting Securities which are the subject of such offer by, or agreement or understanding with, such third party or parties if, prior to such Transfer, RSI shall have been given the opportunity, in the following manner, to purchase such Voting Securities: (a) The Selling ML Entities shall give notice (the "Transfer Notice") to RSI in writing of such proposed Transfer specifying the amount of Voting Securities proposed to be sold or transferred, the proposed price therefor (the "Transfer Consideration"), the identity of the offeror and the other material terms upon which such Transfer is proposed to be made. (b) RSI shall have the right, exercisable by written notice given by RSI to the Selling ML Entities within 15 Business Days after receipt of the Transfer Notice, to purchase from such Selling ML Entities all, but not less than all, the Voting Securities specified in such Transfer Notice for cash in an amount equivalent to the Transfer Consideration. (c) If the Transfer Consideration specified in the Transfer Notice includes any property other than cash, such Transfer Consideration shall be deemed to be the amount of any cash included in the Transfer Consideration plus the value (as jointly determined by a nationally recognized investment banking firm selected by each party) of such other property included in such Transfer Consideration. For this purpose, the parties shall use their reasonable best efforts to cause any determination of the value of any such other property included in the Transfer Consideration to be made within ten Business Days after the date of delivery of the Transfer Notice. If the firms selected by RSI and the Selling ML Entities are unable to agree upon the value of any such other property within such ten Business Day period, such firms shall promptly select a third nationally recognized investment banking firm whose determination shall be conclusive. (d) If RSI exercises its right of first refusal hereunder, the closing of the purchase of the Voting Securities with respect to which such right has been exercised shall take place within 60 days after RSI gives notice of such exercise, which period of time shall be extended as necessary (but in no 15 event for a period of time longer than 60 days after the end of such 60 day period) in order to comply with applicable securities and other laws and regulations or any listing agreement to which RSI is a party. Upon exercise of its right of first refusal, RSI shall be legally obligated to consummate the purchase contemplated thereby, shall use its reasonable best efforts to secure all approvals required in connection therewith, and shall be liable in damages to the Selling ML Entities if for any reason, including the failure to obtain any requisite approvals, the purchase is not consummated; PROVIDED, HOWEVER, that if RSI does not obtain any required approval of its stockholders with respect to such purchase, (i) RSI shall have no liability to the Selling ML Entities with respect to the failure of such purchase to be consummated and (ii) the Voting Securities with respect to which such right was exercised shall not thereafter be subject to the right of first refusal under this Section 4.2 unless to the extent that RSI specifies a designee to purchase Voting Securities pursuant to Section 4.2(f) hereof and such designee consummates its purchase of Voting Securities within the time remaining in the time period during which RSI was to have consummated its purchase of such Voting Securities. (e) If RSI does not exercise its right of first refusal hereunder within the time specified for such exercise, the Selling ML Entities shall be free, during the period of 60 days following the expiration of such time for exercise (which period of time may be extended as necessary (but in no event for a period of time longer than 60 days after the end of such 60 day period) in order to comply with applicable securities and other laws and regulations), to Transfer the Voting Securities specified in the Transfer Notice to the offeror specified in the Transfer Notice on the terms described in the Transfer Notice and at a price not less than the Transfer Consideration. If the Selling ML Entities fail to Transfer the Voting Securities specified in the Transfer Notice in such manner within such period, the Voting Securities specified in the Transfer Notice shall again be subject to the terms of Sections 4.1 and 4.2 hereof. (f) If RSI elects to exercise any of its rights under this Section 4.2, RSI may specify, prior to closing such purchase, another Person as its designee to purchase the Voting Securities to which such notice of intention to exercise such rights relates. If RSI designates another Person as the purchaser pursuant to this Section 4.2, RSI shall be legally obligated, in accordance with Section 4.2(d) above, to complete such purchase if its designee fails to do so. 16 ARTICLE V LEGENDS AND STOP TRANSFER ORDERS 3.15 LEGEND. All certificates evidencing Voting Securities beneficially owned by any of the ML Entities shall bear the following legend: "The securities represented by this certificate are subject to the restrictions on disposition and to the other provisions of a Standstill Agreement dated as of May 17, 1996 among Rykoff-Sexton, Inc., Merrill Lynch Capital Partners, Inc., Merrill Lynch Capital Appreciation Partnership No. B-XVIII, L.P., Merrill Lynch KECALP L.P. 1994, ML Offshore LBO Partnership No. B-XVIII, ML IBK Positions, Inc., MLCP Associates L.P. No. II, MLCP Associates L.P. No. IV, Merrill Lynch KECALP L.P. 1991, Merrill Lynch Capital Appreciation Partnership No. XIII, L.P., ML Offshore LBO Partnership No. XIII, ML Employees LBO Partnership No. I, L.P., Merrill Lynch KECALP L.P. 1987, Merchant Banking L.P. No. II. Copies of such Agreement are on file at the respective offices of such parties." 3.16 STOP TRANSFER ORDERS. The ML Entities each hereby consent to the entry of stop transfer orders with the transfer agents of any such Voting Securities against the transfer of such legended certificates representing such Voting Securities except in compliance with this Agreement. 3.17 REMOVAL OR MODIFICATION OF LEGEND. RSI agrees that upon any Transfer of the securities represented by such certificates made in compliance with the provisions of this Agreement, it will, upon the presentation to its transfer agent of the certificates containing such legend, remove such legend from the certificates being sold or registered. ARTICLE VI REPRESENTATIONS AND WARRANTIES 3.18 REPRESENTATIONS AND WARRANTIES OF THE ML ENTITIES. Each of the ML Entities severally and not jointly represent and warrant to RSI as follows: (a) Merrill Lynch Capital Partners, Inc. and ML IBK Positions, Inc. are each corporations duly organized, validly existing and in good standing under the laws of the State of 17 Delaware. Merrill Lynch Capital Appreciation Partnership No. B-XVIII, L.P., MLCP Associates L.P. No. II, MLCP Associates L.P. No. IV, Merrill Lynch KECALP L.P. 1991, Merrill Lynch KECALP L.P. 1994, Merrill Lynch Capital Appreciation Partnership No. XIII, L.P., ML Employees LBO Partnership No. I, L.P., Merrill Lynch KECALP L.P. 1987 and Merchant Banking L.P. No. II are each limited partnerships, duly organized, validly existing and in good standing under the laws of the State of Delaware. ML Offshore LBO Partnership No. B-XVIII and ML Offshore LBO Partnership No. XIII are each limited partnerships, duly organized, validly existing and in good standing under the laws of the Cayman Islands. (b) Assuming that (i) the ML Entities Shares (as defined below) are duly authorized, validly issued, fully paid and nonassessable, and, immediately prior to their receipt by the ML Entities, are free and clear of all security interests, liens, claims, proxies, charges, encumbrances and options of any nature whatsoever created by any Person other than an ML Entity (other than those created by this Agreement, the Registration Rights Agreement and the Tax Agreement), and (ii) the issuance of the ML Entities Shares to the ML Entities is properly recorded in the stock ledger of RSI, then, upon the issuance of the ML Entities Shares to the ML Entities pursuant to Sections 4.1 and 4.2 of the Merger Agreement, each of the ML Entities will be the beneficial and record owner of RSI Common Shares in the respective amounts set forth in Schedule I attached hereto (the "ML Entities Shares"), free and clear of all security interests, liens, claims, proxies, charges, encumbrances and options of any nature whatsoever, and there will be no outstanding options, warrants or rights to purchase or acquire, or agreements relating to, any of the ML Entities Shares (other than those created by this Agreement, the Registration Rights Agreement and the Tax Agreement). (c) Except for the ML Entities Shares and 2,100 shares of Voting Securities owned by Merrill Lynch, neither any of the ML Entities, nor any of their Affiliates, owns beneficially or of record, directly or indirectly, any Voting Securities or any options, warrants or rights of any nature (including conversion and exchange rights) to acquire beneficial ownership of any Voting Securities. (d) Each of the ML Entities has full legal right, power and authority to enter into and perform this Agreement. This Agreement has been duly authorized, executed and delivered by each of the ML Entities. This Agreement constitutes a legally valid and binding agreement of each of the ML Entities, enforceable in accordance with its terms, except that such enforceability may be subject to bankruptcy, insolvency, 18 receivership, reorganization, moratorium or other similar laws relating to creditors' rights now or hereafter in effect and by general equitable principles. (e) The execution and delivery of this Agreement by the ML Entities does not conflict with or constitute a violation of or default under the respective certificates of incorporation, partnership agreements or certificates of partnership (or comparable documents) of any of the ML Entities or any statute, law, regulation, order or decree applicable to any of the ML Entities, or any contract, commitments, agreement, arrangement or restriction of any kind to which any of the ML Entities are a party or by which any of the ML Entities are bound, other than such violations as would not prevent or materially delay the performance by such ML Entity of its obligations hereunder or otherwise subject RSI to any claim or liability. (f) Schedule II hereto sets forth a true, accurate and complete list of the percentage ownership interests of each partner or securityholder (without naming them) in each ML Entity listed thereon. Schedule III hereto sets forth, with respect to each ML Entity listed thereon, the latest dissolution date for such ML Entity under the terms of its partnership agreement. 3.19 REPRESENTATIONS AND WARRANTIES OF RSI. RSI hereby represents and warrants to the ML Entities as follows: (a) RSI is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. (b) RSI has full legal right, power and authority to enter into and perform this Agreement and the execution and delivery of this Agreement by RSI have been duly authorized by all necessary corporate action on behalf of RSI. This Agreement constitutes a legally valid and binding agreement of RSI, enforceable in accordance with its terms, except that such enforceability may be subject to bankruptcy, insolvency, receivership, reorganization, moratorium or other similar laws relating to creditors' rights now or hereafter in effect, and by general equitable principles. (c) Neither the execution and delivery of this Agreement nor the consummation by RSI of the transactions contemplated hereby conflicts with or constitutes a violation of or default under the Restated Certificate of Incorporation or By-laws of RSI, any statute, law, regulation, order or decree applicable to RSI, or any contract, commitment, agreement, arrangement or restriction of any kind to which RSI is a party or by which RSI is bound, other than such violations as would not 19 prevent or materially delay the performance by RSI of its obligations hereunder or otherwise subject any ML Entity to any claim or liability. ARTICLE VII FURTHER ASSURANCES Each party shall execute and deliver such additional instruments and other documents and shall take such further actions as may be necessary or appropriate to effectuate, carry out and comply with all of their obligations under this Agreement. If reasonably requested by RSI, each ML Entity agrees to execute a letter to RSI confirming that the beneficial ownership of Voting Securities by the ML Entities and their Affiliates does not represent in the aggregate Total Voting Power in excess of the Standstill Percentage as of the date of such letter. ARTICLE VIII TERMINATION Unless earlier terminated by written agreement of the parties hereto, this Agreement shall terminate on the earlier of (i) the tenth anniversary of the Effective Date and (ii) the date on which the ML Entities and their Affiliates beneficially own Voting Securities representing in the aggregate less than 10% of the Total Voting Power; PROVIDED, that if, prior to the tenth anniversary of the Effective Date, (x) the ML Entities shall beneficially own Voting Securities representing in the aggregate 10% or more of the Total Voting Power, or (y) the ML Entities and their Affiliates shall beneficially own Voting Securities representing in the aggregate 5% or more of the Total Voting Power which causes them to be a Schedule 13D Filer, this Agreement shall automatically be reinstated. Any termination of this Agreement as provided herein shall be without prejudice to the rights of any party arising out of the breach by any other party of any provisions of this Agreement which occurred prior to the termination. ARTICLE IX MISCELLANEOUS 3.20 NOTICES, ETC. All notices, requests, demands or other communications required by or otherwise with respect to this 20 Agreement shall be in writing and shall be deemed to have been duly given to any party when delivered personally (by courier service or otherwise), when delivered by telecopy and confirmed by return telecopy, or seven days after being mailed by first-class mail, postage prepaid in each case to the applicable addresses set forth below: If to RSI: Rykoff-Sexton, Inc. 1050 Warrenville Road Lisle, Illinois 60532-5201 Attn: Mark Van Stekelenburg, Chairman, President and Chief Executive Officer Telecopy: (708) 971-6588 with a copy to: Elizabeth C. Kitslaar, Esq. Jones, Day, Reavis & Pogue 77 West Wacker Chicago, Illinois 60601-1692 Telecopy: (312) 782-8585 If to the ML Entities: Merrill Lynch Capital Partners, Inc. 225 Liberty Street New York, New York 10080-6123 Attn: James V. Caruso Telecopy: (212) 236-7364 with a copy to: Marcia L. Tu, Esq. Merrill Lynch & Co. World Financial Center North Tower 250 Vesey Street New York, New York 10281-1323 Telecopy: (212) 449-3207 with a copy to: Bonnie Greaves, Esq. Shearman & Sterling 599 Lexington Avenue New York, New York 10022 Telecopy: (212) 848-7179 21 or to such other address as such party shall have designated by notice so given to each other party. 3.21 AMENDMENTS, WAIVERS, ETC. This Agreement may not be amended, changed, supplemented, waived or otherwise modified or terminated except by an instrument in writing signed by the holders of a majority in number of the ML Entities Shares and by RSI following approval thereof by a majority of the Continuing Directors. 3.22 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, including, without limitation, Section 2.10, this Agreement shall be binding upon and shall inure to the benefit of and be enforceable by the parties and their respective Affiliates and their respective successors and assigns, including without limitation in the case of any corporate party hereto any corporate successor by merger or otherwise. Except as otherwise provided herein, this Agreement shall not be assignable. 3.23 ENTIRE AGREEMENT. This Agreement embodies the entire agreement and understanding among the parties relating to the subject matter hereof and supersedes all prior agreements and understandings relating to such subject matter. There are no representations, warranties or covenants by the parties hereto relating to such subject matter other than those expressly set forth in this Agreement, the Merger Agreement and the ML Agreement. 3.24 SPECIFIC PERFORMANCE. The parties acknowledge that money damages are not an adequate remedy for violations of this Agreement and that any party may, in its sole discretion, apply to a court of competent jurisdiction for specific performance or injunctive or such other relief as such court may deem just and proper in order to enforce this Agreement or prevent any violation hereof and, to the extent permitted by applicable law, each party waives any objection to the imposition of such relief. 3.25 REMEDIES CUMULATIVE. All rights, powers and remedies provided under this Agreement or otherwise available in respect hereof at law or in equity shall be cumulative and not alternative, and the exercise or beginning of the exercise of any thereof by any party shall not preclude the simultaneous or later exercise of any other such right, power or remedy by such party. 3.26 NO WAIVER. The failure of any party hereto to exercise any right, power or remedy provided under this Agreement or otherwise available in respect hereof at law or in equity, or to insist upon compliance by any other party hereto with its obligations hereunder, and any custom or practice of the parties 22 at variance with the terms hereof, shall not constitute a waiver by such party of its right to exercise any such or other right, power or remedy or to demand such compliance. 3.27 NO THIRD PARTY BENEFICIARIES. This Agreement is not intended to be for the benefit of and shall not be enforceable by any Person who or which is not a party hereto. 3.28 JURISDICTION. Each party hereby irrevocably submits to the exclusive jurisdiction of the Court of Chancery in the State of Delaware in any action, suit or proceeding arising in connection with this Agreement, and agrees that any such action, suit or proceeding shall be brought only in such court (and waives any objection based on forum non conveniens or any other objection to venue therein); PROVIDED, HOWEVER, that such consent to jurisdiction is solely for the purpose referred to in this Section 9.9 and shall not be deemed to be a general submission to the jurisdiction of said court or in the State of Delaware other than for such purposes. Each party hereto hereby waives any right to a trial by jury in connection with any such action, suit or proceeding. 3.29 GOVERNING LAW. This Agreement and all disputes hereunder shall be governed by and construed and enforced in accordance with the law of the State of Delaware. 3.30 NAME, CAPTIONS. The name assigned to this Agreement and the section captions used herein are for convenience of reference only and shall not affect the interpretation or construction hereof. 3.31 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one instrument. Each counterpart may consist of a number of copies each signed by less than all, but together signed by all, the parties hereto. 3.32 EXPENSES. Each of the parties hereto shall bear their own expenses incurred in connection with this Agreement and the transactions contemplated hereby, except that in the event of a dispute concerning the terms or enforcement of this Agreement, the prevailing party in any such dispute shall be entitled to reimbursement of reasonable legal fees and disbursements from the other party or parties to such dispute. 3.33 PRESS RELEASES. The initial press release relating to this Agreement shall be a joint press release and, thereafter, RSI and the ML Representative shall consult with each other before issuing any press release or otherwise making any public 23 statements with respect to this Agreement, and neither RSI nor any ML Entity shall issue any such press release or make any such public statement without the consent (which shall not be unreasonably withheld) of the other (the ML Representative acting on behalf of the ML Entities for such purpose), except to the extent required by applicable law or the rules and requirements of the New York Stock Exchange, in which case the issuing party shall use its reasonably best efforts to consult with the other party (the ML Representative in case of the ML Entities) before issuing any such release or making any such public statement. 24 IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the date first above written. RYKOFF-SEXTON, INC. By: /s/ ---------------------------------- Name: Mark Van Stekelenburg Title: Chairman, President and Chief Executive Officer MERRILL LYNCH CAPITAL PARTNERS, INC. By: /s/ ---------------------------------- Name and Title: MERRILL LYNCH CAPITAL APPRECIATION PARTNERSHIP NO. B-XVIII, L.P. By: Merrill Lynch LBO Partners No. B-IV, L.P., as General Partner By: Merrill Lynch Capital Partners, Inc., as General Partner By: /s/ ---------------------------------- Name and Title: MERRILL LYNCH KECALP L.P. 1994 BY: KECALP Inc., as General Partner By: /s/ ---------------------------------- Name and Title: 25 ML OFFSHORE LBO PARTNERSHIP NO. B-XVIII By: Merrill Lynch LBO Partners No. B-IV, L.P., as Investment General Partner By: Merrill Lynch Capital Partners, Inc., as General Partner By: /s/ ---------------------------------- Name and Title: ML IBK POSITIONS, INC. By: /s/ ---------------------------------- Name and Title: MLCP ASSOCIATES L.P. NO. II By: Merrill Lynch Capital Partners, Inc., as General Partner By: /s/ ---------------------------------- Name and Title: MLCP ASSOCIATES L.P. NO. IV By: Merrill Lynch Capital Partners, Inc., as General Partner By: /s/ ---------------------------------- Name and Title: 26 MERRILL LYNCH KECALP L.P. 1991 By: KECALP Inc., as General Partner By: /s/ ---------------------------------- Name and Title: MERRILL LYNCH CAPITAL APPRECIATION PARTNERSHIP NO. XIII, L.P. By: Merrill Lynch LBO Partners No. IV, L.P., as General Partner By: Merrill Lynch Capital Partners, Inc., as General Partner By: /s/ ---------------------------------- Name and Title: ML OFFSHORE LBO PARTNERSHIP NO. XIII By: Merrill Lynch LBO Partners No. IV, L.P., as Investment General Partner By: Merrill Lynch Capital Partners, Inc., as General Partner By: /s/ ---------------------------------- Name and Title: 27 ML EMPLOYEES LBO PARTNERSHIP NO. I, L.P. By: ML Employees LBO Managers, Inc., as General Partner By: /s/ ---------------------------------- Name and Title: MERRILL LYNCH KECALP L.P. 1987 By: KECALP Inc., as General Partner By: /s/ ---------------------------------- Name and Title: MERCHANT BANKING L.P. NO. II By: Merrill Lynch MBP Inc., as General Partner By: /s/ ---------------------------------- Name and Title: 28 SCHEDULE I SHARE OWNERSHIP Name of Stockholder RSI Common Shares ------------------- ----------------- MERRILL LYNCH CAPITAL 4,357,505 APPRECIATION PARTNERSHIP NO. B-XVIII, L.P. MERRILL LYNCH KECALP L.P. 1994 67,879 ML OFFSHORE LBO PARTNERSHIP NO. B-XVIII 2,192,382 ML IBK POSITIONS, INC. 1,440,181 MLCP ASSOCIATES L.P. NO. II 52,257 MLCP ASSOCIATES L.P. NO. IV 13,575 MERRILL LYNCH KECALP L.P. 1991 189,793 MERRILL LYNCH CAPITAL 1,620,103 APPRECIATION PARTNERSHIP NO. XIII, L.P. ML OFFSHORE LBO PARTNERSHIP NO. XIII 41,188 ML EMPLOYEES LBO PARTNERSHIP NO. I, L.P. 40,273 MERRILL LYNCH KECALP L.P. 1987 30,434 MERCHANT BANKING L.P. NO. II 30,434 SCHEDULE II PERCENTAGE OWNERSHIPS 30 SCHEDULE III DISSOLUTION DATES
Name of Stockholder Latest ------------------- ------ Dissolution Date ---------------- MERRILL LYNCH CAPITAL APPRECIATION PARTNERSHIP NO. B-XVIII, L.P. December 31, 2003 MERRILL LYNCH KECALP L.P. 1994 December 31, 2034 ML OFFSHORE LBO PARTNERSHIP NO. B-XVIII December 31, 2003 ML IBK POSITIONS, INC. None. MLCP ASSOCIATES L.P. NO. II December 31, 2002 MLCP ASSOCIATES L.P. NO. IV December 31, 2006 MERRILL LYNCH KECALP L.P. 1991 December 31, 2033 MERRILL LYNCH CAPITAL APPRECIATION PARTNERSHIP NO. XIII, L.P. December 31, 2000 ML OFFSHORE LBO PARTNERSHIP NO. XIII December 31, 2000 ML EMPLOYEES LBO PARTNERSHIP NO. I, L.P. December 31, 2004 MERRILL LYNCH KECALP L.P. 1987 December 31, 2029 MERCHANT BANKING L.P. NO. II December 31, 2000
31 EX-10.40 17 TAX AGREEMENT TAX AGREEMENT This Tax Agreement (the "Agreement"), dated May 17, 1996, by and among Rykoff-Sexton, Inc., a Delaware corporation ("RSI"), and each other Person listed on the signature pages hereof (each a "Shareholder" and, collectively, the "Shareholders"). W I T N E S S E T H: WHEREAS, RSI, USF Acquisition Corporation, a Delaware corporation and a wholly owned subsidiary of RSI ("Merger Sub"), and US Foodservice Inc., a Delaware corporation (the "Company"), have entered into an Agreement and Plan of Merger, dated February 2, 1996 (the "Merger Agreement", capitalized terms used but not defined herein having the same meanings ascribed to such terms in the Merger Agreement), pursuant to which the Company shall merge with and into Merger Sub; WHEREAS, it is the intention of the parties to the Merger Agreement that the Merger shall qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"); WHEREAS, each Shareholder is the beneficial and record owner of the number of shares of Class A Common Stock or Class B Common Stock set forth opposite its respective name on Schedule I to this Agreement, all of which will be converted into a number of RSI Common Shares in the Merger pursuant to Section 4.1 of the Merger Agreement; and WHEREAS, pursuant to Section 8.2(h) of the Merger Agreement, it is a condition to the respective obligations of RSI and Merger Sub to consummate the transactions contemplated by the Merger Agreement that RSI and the Shareholders enter into this Agreement. NOW THEREFORE, in consideration of the foregoing and the mutual covenants and agreements set forth herein, the parties hereto agree as follows: Section 1. COVENANTS OF THE SHAREHOLDERS AND RSI. (a) During the two-year period commencing on the date hereof, each Shareholder agrees that such Shareholder shall not, other than incident or pursuant to an Extraordinary Transaction, (i) sell, exchange, distribute or otherwise dispose of in any manner, or enter into one or more transactions whereby such Shareholder gives up substantially all of the benefits and burdens of ownership in (all such actions hereinafter collectively referred to as a "Transfer"), or (ii) enter into one or more contracts or other agreements to Transfer, or that would by its or their terms require a Transfer of, a number of RSI Common Shares received by such Shareholder in the Merger that exceeds in the aggregate (x) the number of RSI Common Shares received by such Shareholder in the Merger MULTIPLIED BY (y) the Permitted Sales Factor. For purposes of this Agreement, the "Permitted Sales Factor" shall be a number equal to 1.00 MINUS the Continuity Factor, and the "Continuity Factor" shall be a fraction, the numerator of which shall be the aggregate number of RSI Common Shares that must continue to be owned by the stockholders of the Company to satisfy the "continuity of interest" requirement of Treas. Reg. Section 1.368-1(b) (the "Continuity Shares Number"), and the denominator of which shall be the aggregate number of RSI Common Shares issued in the Merger and held at the Effective Time by the Shareholders and by stockholders of the Company who have executed and delivered to RSI an instrument in the form of Exhibit B attached hereto. For purposes of computing the Continuity Factor, the "Continuity Shares Number" shall be determined by applying the formula set forth on Schedule II attached hereto. (b) For purposes of this Agreement, an Extraordinary Transaction means a merger, consolidation or other business combination, tender or exchange offer, share exchange, restructuring, recapitalization or other similar transaction involving RSI so long as any such transaction is not arranged as part of an overall plan to which such Shareholder is a party and pursuant to which the Merger is also being consummated. (c) As soon as practicable following the Effective Time, RSI and Merrill Lynch Capital Partners, Inc., a Delaware corporation ("MLCP"), shall mutually determine the Continuity Factor and thereafter RSI shall deliver to each Shareholder a notice setting forth the total number of RSI Common Shares that such Shareholder must hold during the two-year period commencing on the date hereof in order to comply with the covenant of such Shareholder set forth in Section 1(a) above (with respect to each Shareholder, the "Restricted Shares Number"), and setting forth in reasonable detail the calculation thereof. (d) Certificates evidencing the RSI Common Shares received by each Shareholder in the Merger shall bear the following legend, in addition to any other legend that may be required by the Merger Agreement, the ML Agreement, the Standstill Agreement or any other agreement contemplated by any such Agreements: - 2 - "The shares of common stock represented by this certificate are subject to a Tax Agreement dated as of May 17, 1996, with Rykoff- Sexton, Inc. that imposes, among other things, certain restrictions on the transfer of such shares. Copies of the Tax Agreement are on file at the principal office of Rykoff-Sexton, Inc." (e) In the case of any Shareholder not subject to aggregation treatment under Section 7 hereof, the legend referred to in Section 1(d) hereof shall be placed only on certificates evidencing a number of RSI Common Shares received by such Shareholder in the Merger equal to the Restricted Shares Number determined with respect to such Shareholder. (f) Each Shareholder hereby consents to the entry of stop transfer orders with RSI's transfer agents with respect to RSI Common Shares prohibiting the Transfer of any certificates representing RSI Common Shares that bear the legend referred to in Section 1(d) hereof, except for Transfers that are made in compliance with the provisions of this Agreement. (g) In the case of a Transfer of any certificates representing RSI Common Shares and bearing the legend referred to in Section 1(d) hereof that is made in compliance with the provisions of this Agreement, RSI shall instruct its transfer agents with respect to RSI Common Shares to permit such Transfer upon the presentation to any such transfer agent of the legended certificates together with a certificate in the form of Exhibit A attached hereto, and RSI shall remove such legend from the certificates being Transferred. (h) RSI agrees that upon expiration of the two-year period provided for in Section 1(a) hereof, RSI shall, upon the presentation to any of its transfer agents of any certificates representing RSI Common Shares and containing the legend referred to in Section 1(d) hereof, remove such legend from the certificates. Section 2. TAX REPRESENTATIONS OF THE SHAREHOLDERS. Each Shareholder hereby represents and warrants to RSI that, as of the date hereof, such Shareholder has no plan or intention to Transfer a number of RSI Common Shares received by such Shareholder in the Merger that would exceed in the aggregate (x) the number of RSI Common Shares received by such Shareholder in the Merger MULTIPLIED BY (y) the Permitted Sales Factor. - 3 - Section 3. WAIVER OF CLAIMS. In the case solely of a Shareholder that has not breached the covenant contained in Section 1(a) hereof or any of its representations and warranties set forth in Section 6 hereof, RSI and each other Shareholder (collectively the "Releasors") hereby waive and release any and all claims, rights, causes of action, suits, whether known or unknown, that as of the date hereof could have been, or in the future might be asserted by or on behalf of any Releasor or any of its respective associates, affiliates, parents, subsidiaries, present or former officers, directors, employees, attorneys, financial advisors or other advisors or agents, heirs, executors, personal representatives, estates, administrators, and successors and assigns against such Shareholder under this Agreement or otherwise resulting from or relating to the failure of the Merger to qualify as a reorganization within the meaning of Section 368(a) of the Code. Section 4. RELIANCE. Each Shareholder understands and agrees that the representations and warranties made by the Shareholder in Section 2 hereof will be relied upon by Morgan, Lewis & Bockius LLP, Shearman & Sterling, and Jones, Day, Reavis & Pogue, respectively, in connection with their opinions to be delivered pursuant to Section 8.1(h) and Section 8.1(i) of the Merger Agreement with respect to the treatment of the Merger for federal income tax purposes as a tax-free reorganization within the meaning of Section 368(a) of the Code. Section 5. REPRESENTATIONS AND WARRANTIES OF RSI. RSI represents and warrants to each of the Shareholders as follows: This Agreement has been approved by the Board of Directors of RSI, and has been duly executed and delivered by a duly authorized officer of RSI. This Agreement constitutes a valid and binding agreement of RSI, enforceable against RSI in accordance with its terms, except as may be limited by applicable bankruptcy, insolvency, reorganization, moratorium and other similar laws of general application which may affect the enforcement of creditors' rights generally and by general equitable principles. The execution and delivery of this Agreement by RSI does not conflict with or constitute a violation of or default under the Restated Certificate of Incorporation or By-laws of RSI, any statute, law, rule, regulation, order or decree applicable to RSI, or any contract, commitment, agreement, arrangement or restriction of any kind to which RSI is a party or by which RSI is bound, other than such violations as would not prevent or materially delay the performance by RSI of its obligations hereunder or otherwise subject any Shareholder to any claim or liability. - 4 - Section 6. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDER. Each Shareholder represents and warrants to RSI as follows: This Agreement has been duly authorized, executed and delivered by such Shareholder. This Agreement constitutes the valid and binding agreement of such Shareholder, enforceable against such Shareholder in accordance with its terms, except as may be limited by applicable bankruptcy, insolvency, reorganization, moratorium and other similar laws of general application which may affect the enforcement of creditors' rights generally and by general equitable principles. Except as disclosed on Schedule III attached hereto, immediately prior to the Effective Time, such Shareholder is the record and beneficial owner, under U.S. federal income tax principles, of the number of shares of Class A Common Stock or Class B Common Stock set forth opposite its respective name on Schedule I to this Agreement, in each case free and clear of all claims, liens, pledges, security interests, restrictions or encumbrances of any nature whatsoever, with no restrictions on voting rights and other incidents of record and beneficial ownership incident thereto, other than the Stockholders Agreement. The execution and delivery of this Agreement by such Shareholder does not conflict with or constitute a violation of or default under the certificate of incorporation, by-laws, partnership agreement or certificate of partnership (or other comparable documents) of such Shareholder, any provisions of any statute, law, rule, regulation, order or decree applicable to such Shareholder, or any contract, commitment, agreement, arrangement or restriction of any kind to which such Shareholder is a party or by which such Shareholder is bound, other than such violations as would not prevent or materially delay the performance by such Shareholder of its obligations hereunder or subject RSI to any claim or liability. Section 7. AGGREGATION OF SHAREHOLDERS. For purposes of Sections 1 and 2 hereof, the RSI Common Shares held by any Shareholder of which MLCP or an Affiliate of MLCP is a general partner, or which is controlled by MLCP or an Affiliate of MLCP, shall be aggregated, and such Shareholders shall be regarded as a single Shareholder. Section 8. DISTRIBUTION BY EQUITABLE DEAL FLOW FUND, L.P. If the Equitable Deal Flow Fund, L.P. ("Equitable L.P.") becomes required by the terms of its partnership agreement to distribute to its partners a number of RSI Common Shares received by it in the Merger in a Transfer that would otherwise be in violation of Section 1(a) hereof, Equitable L.P. shall be permitted to effect such distribution provided that (i) the shares of RSI Common Stock so distributed to its partners are distributed in accordance with the partners' respective interests in Equitable L.P., (ii) each of such partners shall have executed - 5 - and delivered to RSI in advance of such distribution a document evidencing such partner's agreement to be bound by and to comply with all of the terms and provisions of Section 1 hereof, which document shall be satisfactory in form and substance to RSI in its reasonable discretion, and (iii) at the written request of each such partner, which request shall specify the total number of RSI Common Shares to be distributed to such partner and such partner's pro rata share of the Restricted Shares Number determined with respect to Equitable L.P., RSI shall cause two stock certificates to be issued to each such partner representing such RSI Common Shares to be so distributed to such partner, one of which shall evidence a number of RSI Common Shares equal to such partner's pro rata share of the Restricted Shares Number determined with respect to Equitable L.P. and which shall bear the legend referred to in Section 1(d) hereof, and one of which shall evidence the balance of the RSI Common Shares to be distributed to such partner and which shall not bear the legend referred to in Section 1(d) hereof. Section 9. MISCELLANEOUS. (a) NOTICES, ETC. All notices, requests, demands or other communications required by or otherwise with respect to this Agreement shall be in writing and shall be deemed to have been duly given to any party when delivered personally (by courier service or otherwise), when delivered by telecopy and confirmed by return telecopy, or seven days after being mailed by first-class mail, postage prepaid in each case to the applicable addresses set forth below: If to a Shareholder that is one of the ML Entities: Merrill Lynch Capital Partners, Inc. 225 Liberty Street New York, NY 10080-6123 Attn: James V. Caruso Telecopy: (212) 236-7364 with a copy to: Marcia L. Tu, Esq. Merrill Lynch & Co., Inc. World Financial Center North Tower 250 Vesey Street New York, NY 10281-1323 Telecopy: (212) 449-3207 with a copy to: - 6 - Bonnie Greaves, Esq. Shearman & Sterling 599 Lexington Avenue New York, NY 10022 Telecopy: (212) 848-7179 If to RSI: Rykoff-Sexton, Inc. 1050 Warrenville Road Lisle, IL 60532-5201 Attn: Mark Van Stekelenburg, Chairman, President and Chief Executive Officer Telecopy: (708) 971-6588 with a copy to: Elizabeth C. Kitslaar, Esq. Jones, Day, Reavis & Pogue 77 West Wacker Chicago, IL 60601-1692 Telecopy: (312) 782-8585 and if to a Shareholder that is not one of the ML Entities, to the address set forth below the name of such Shareholder on the signature pages to this Agreement, or to such other address as any such party shall have designated by notice so given to each other party. (b) AMENDMENTS, WAIVERS, ETC. This Agreement may not be amended, changed, supplemented, waived or otherwise modified or terminated except by an instrument in writing signed by each of the parties hereto. (c) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and shall inure to the benefit of and be enforceable by the parties and their respective successors and assigns, including without limitation in the case of any corporate party hereto any corporate successor by merger or otherwise. Except with the prior written consent of the other parties hereto, no party may assign any of its rights or obligations hereunder. (d) ENTIRE AGREEMENT. This Agreement constitutes the entire agreement and understanding among the parties relating to the subject matter hereof and supersedes all prior agreements and understandings relating to such subject matter. There are no representations, warranties or covenants by the parties hereto - 7 - relating to such subject matter other than those expressly set forth in this Agreement. (e) SEVERABILITY. If any term of this Agreement or the application thereof to any party or circumstance shall be held invalid or unenforceable to any extent, the remainder of this Agreement and the application of such term to the other parties or circumstances shall not be affected thereby and shall be enforced to the greatest extent permitted by applicable law, provided that in such event the parties shall negotiate in good faith in an attempt to agree to another provision (in lieu of the term or application held to be invalid or unenforceable) that will be valid and enforceable and will carry out the parties' intentions hereunder. (f) SPECIFIC PERFORMANCE. The parties acknowledge that money damages are not an adequate remedy for violations of this Agreement and that any party may, in its sole discretion, apply to a court of competent jurisdiction for specific performance or injunctive or such other relief as such court may deem just and proper in order to enforce this Agreement or prevent any violation hereof and, to the extent permitted by applicable law, each party waives any objection to the imposition of such relief. (g) REMEDIES CUMULATIVE. All rights, powers and remedies provided under this Agreement or otherwise available in respect hereof at law or in equity shall be cumulative and not alternative, and the exercise or beginning of the exercise of any thereof by any party shall not preclude the simultaneous or later exercise of any other such right, power or remedy by such party. (h) NO WAIVER. The failure of any party hereto to exercise any right, power or remedy provided under this Agreement or otherwise available in respect hereof at law or in equity, or to insist upon compliance by any other party hereto with its obligations hereunder, and any custom or practice of the parties at variance with the terms hereof, shall not constitute a waiver by such party of its right to exercise any such or other right, power or remedy or to demand such compliance. (i) NO THIRD PARTY BENEFICIARIES. Except as provided in Section 4 hereof, this Agreement is not intended to be for the benefit of and shall not be enforceable by any person or entity who or which is not a party hereto. (j) JURISDICTION. Each party hereby irrevocably submits to the exclusive jurisdiction of the Court of Chancery in the State of Delaware in any action, suit or proceeding arising - 8 - in connection with this Agreement, and agrees that any such action, suit or proceeding shall be brought only in such court (and waives any objection based on forum non conveniens or any other objection to venue therein); PROVIDED, HOWEVER, that such consent to jurisdiction is solely for the purpose referred to in this paragraph (j) and shall not be deemed to be a general submission to the jurisdiction of said Court or in the State of Delaware other than for such purposes. Each party hereto hereby waives any right to a trial by jury in connection with any such action, suit or proceeding. (k) GOVERNING LAW. This Agreement and all disputes hereunder shall be governed by and construed and enforced in accordance with the law of the State of Delaware. (l) NAME, CAPTIONS. The name assigned to this Agreement and the section captions used herein are for convenience of reference only and shall not affect the interpretation or construction hereof. (m) COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one instrument. Each counterpart may consist of a number of copies each signed by less than all, but together signed by all, the parties hereto. (n) EXPENSES. Each of the parties hereto shall bear its own expenses incurred in connection with this Agreement and the transactions contemplated hereby, except that in the event of a dispute concerning the terms or enforcement of this Agreement, the prevailing party in any such dispute shall be entitled to reimbursement of reasonable legal fees and disbursements from the other party or parties to such dispute. - 9 - IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the date first written. RYKOFF-SEXTON, INC. By:/s/ Mark Van Stekelenburg ---------------------------- Name: Mark Van Stekelenburg Title: Chairman, President and Chief Executive Officer [Counterpart Signature Pages To Follow] - 10 - [Counterpart Signature Page To Tax Agreement] IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the date first written. MERRILL LYNCH CAPITAL APPRECIATION PARTNERSHIP NO. B-XVIII, L.P. By: Merrill Lynch LBO Partners No. B-IV, L.P., as General Partner By: Merrill Lynch Capital Partners,Inc., as General Partner By:/s/ ---------------------------- Name: Title: Address: [Counterpart Signature Page To Tax Agreement] IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the date first written. MERRILL LYNCH KECALP L.P. 1994 By: KECALP Inc., as General Partner By:/s/ ----------------------------- Name: Title: Address: [Counterpart Signature Page To Tax Agreement] IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the date first written. ML OFFSHORE LBO PARTNERSHIP NO. B-XVIII By: Merrill Lynch LBO Partners No. B-IV, L.P., as Investment General Partner By: Merrill Lynch Capital Partners, Inc., as General Partner By:/s/ ----------------------------- Name: Title: Address: [Counterpart Signature Page To Tax Agreement] IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the date first written. ML IBK POSITIONS, INC. By:/s/ ----------------------------- Name: Title: Address: [Counterpart Signature Page To Tax Agreement] IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the date first written. MLCP ASSOCIATES L.P. NO. II By: Merrill Lynch Capital Partners, Inc., as General Partner By:/s/ ----------------------------- Name: Title: Address: [Counterpart Signature Page To Tax Agreement] IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the date first written. MERRILL LYNCH KECALP L.P. 1991 By: KECALP Inc., as General Partner By:/s/ ----------------------------- Name: Title: Address: [Counterpart Signature Page To Tax Agreement] IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the date first written. MERRILL LYNCH CAPITAL APPRECIATION PARTNERSHIP NO. XIII, L.P. By: Merrill Lynch LBO Partners No. IV, L.P., as General Partner By: Merrill Lynch Capital Partners, Inc., as General Partner By:/s/ ----------------------------- Name: Title: Address: [Counterpart Signature Page To Tax Agreement] IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the date first written. ML OFFSHORE LBO PARTNERSHIP NO. XIII By: Merrill Lynch LBO Partners No. IV, L.P., as Investment General Partner By: Merrill Lynch Capital Partners, Inc., as General Partner By:/s/ ----------------------------- Name: Title: Address: [Counterpart Signature Page To Tax Agreement] IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the date first written. ML EMPLOYEES LBO PARTNERSHIP NO. I, L.P. By: ML Employees LBO Managers, Inc., as General Partner By:/s/ ----------------------------- Name: Title: Address: [Counterpart Signature Page To Tax Agreement] IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the date first written. MERRILL LYNCH KECALP L.P. 1987 By: KECALP Inc., as General Partner By:/s/ ----------------------------- Name: Title: Address: [Counterpart Signature Page To Tax Agreement] IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the date first written. MERCHANT BANKING L.P. NO. II By: Merrill Lynch MBP Inc., as General Partner By:/s/ ----------------------------- Name: Title: Address: [Counterpart Signature Page To Tax Agreement] IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the date first written. MLCP ASSOCIATES L.P. NO. IV By: Merrill Lynch Capital Partners, Inc., as General Partner By:/s/ ----------------------------- Name: Title: Address: [Counterpart Signature Page To Tax Agreement] IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the date first written. EQUITABLE DEAL FUND FLOW, L.P. By:/s/ ----------------------------- Name: Title: Address: [Counterpart Signature Page To Tax Agreement] IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the date first written. EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES By:/s/ ----------------------------- Name: Title: Address: [Counterpart Signature Page To Tax Agreement] IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the date first written. EQUITABLE VARIABLE LIFE INSURANCE COMPANY By:/s/ ----------------------------- Name: Title: Address: [Counterpart Signature Page To Tax Agreement] IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the date first written. FRANK H. BEVEVINO By:/s/ ----------------------------- Name: Frank H. Bevevino Address: [Counterpart Signature Page To Tax Agreement] IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the date first written. THOMAS G. MCMULLEN By:/s/ ----------------------------- Name: Thomas G. McMullen Address: [Counterpart Signature Page To Tax Agreement] IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the date first written. JOHN R. BEVEVINO By:/s/ ----------------------------- Name: John R. Bevevino Address: [Counterpart Signature Page To Tax Agreement] IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the date first written. THOMAS BEVEVINO By:/s/ ----------------------------- Name: Thomas Bevevino Address: [Counterpart Signature Page To Tax Agreement] IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the date first written. KENNETH B. KOZEL By:/s/ ----------------------------- Name: Kenneth B. Kozel Address: [Counterpart Signature Page To Tax Agreement] IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the date first written. MARGARET CRAMPTON By:/s/ ----------------------------- Name: Margaret Crampton Address: [Counterpart Signature Page To Tax Agreement] IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the date first written. WILLIAM WALTRIP By:/s/ ----------------------------- Name: William Waltrip Title: Address: SCHEDULE I SHARE OWNERSHIP Class A Class B Name of Stockholder Common Stock Common Stock ------------------- ------------ ------------ Merrill Lynch Capital 2,990,738.3220 0 Appreciation Partnership No. B-XVIII, L.P. Merrill Lynch KECALP L.P. 46,588.2120 0 1994 ML Offshore LBO Partnership 1,504,723.9680 0 No. B-XVIII ML IBK Positions, Inc. 988,456.6839 0 MLCP Associates L.P. No. II 35,866.7100 0 Merrill Lynch KECALP L.P. 130,263.0120 0 1991 Merrill Lynch Capital 1,111,944.8955 0 Appreciation Partnership No. XIII, L.P. ML Offshore LBO Partnership 28,269.6001 0 No. XIII ML Employees LBO 27,641.6784 0 Partnership No. I, L.P. Merrill Lynch KECALP L.P. 20,888.4216 0 1987 Merchant Banking L.P. No. 20,888.4216 0 II MLCP Associates L.P. No. IV 9,317.4840 0 Equitable Deal Fund Flow, 0 410,603.1230 L.P. Equitable Life Assurance 0 369,543.1759 Society of the United States Equitable Variable Life 0 41,059.9477 Insurance Company Frank H. Bevevino 276,787.9620 0 Thomas G. McMullen 125,067.9870 0 John R. Bevevino 87,623.3160 0 Thomas Bevevino 82,504.8180 0 Kenneth B. Kozel 46,100.3400 0 Margaret Crampton 45,934.8120 0 William Waltrip 41,991.4440 0 SCHEDULE II CONTINUITY SHARES NUMBER = .40[(A x E) + (B x E) + (C x E) + (D x E) + F] ---------------------------------------------- Y Where A = the total number of Shares converted into RSI Common Shares in the Merger (excluding fractional RSI Common Shares) and held by Shareholders at the Effective Time; B = the total number of Shares converted into RSI Common Shares in the Merger (excluding fractional RSI Common Shares) and held by persons that were stockholders of the Company immediately prior to the Merger that are not Shareholders at the Effective Time; C = the total number of Dissenting Shares; D = the total number of Shares that would be issued upon the deemed exercise of all Options granted by the Company under the US Foodservice Inc. 1992 Stock Option Plan (Effective September 4, 1992; As Amended September 23, 1993) that have an adjusted exercise price of either $.02 per share or $2.00 per share and that have not been exercised as of the Effective Time (the "Deemed Exercised Options"); E = the fair market value of a Share at the Effective Time determined as follows: E = Y x the Exchange Ratio; and - -------------------- At the option of MLCP, certain stockholders owning fewer than 25,000 shares of Class A Common Stock immediately prior to the Effective Time may be asked to make only the representations and warranties contained in Section 2 of this Agreement pursuant to an instrument in the form of Exhibit B attached to this Agreement. F = the total amount paid as consideration to redeem the Preferred Stock pursuant to the Preferred Stock Redemption Agreements (other than the Preferred Stock Redemption Agreement between RSI and Bankamerica Capital Corporation) and the total cash consideration paid in lieu of fractional RSI Common Shares; Y = the fair market value of an RSI Common Share at the Effective Time, which shall be deemed to be equal to the mean between the high and low trading prices on the NYSE of one RSI Common Share on the Closing Date, as reported in the New York Stock Exchange Composite Tape. SCHEDULE III ENCUMBRANCES Name of Stockholder - ------------------- Description ----------- Kenneth B. Kozel Mr. Kozel has pledged 31,185 shares of Class A Common Stock to secure repayment of a non-recourse loan made by Sara Lee Corporation to Mr. Kozel in 1988 in the outstanding principal amount of $168,000. This loan will remain outstanding following the merger and Mr. Kozel will be required to pledge 21,000 RSI Common Shares to secure repayment of such loan. EXHIBIT A TO: Chemical Mellon Shareholder Services, L.L.C. Please refer to the Tax Agreement, dated May ____, 1996, among Rykoff- Sexton, Inc., a Delaware corporation ("RSI"), and each other person listed on the signature pages thereof (the "Agreement"), that imposes, among other things, certain restrictions on the transfer of shares of Common Stock, par value $.10 per share, of RSI ("RSI Common Shares") received by the undersigned in the merger of US Foodservice Inc. with and into USF Acquisition Corporation, a Delaware corporation and a wholly owned subsidiary of RSI. The undersigned hereby certifies that the RSI Common Shares represented by the certificate attached hereto are being transferred in compliance with the provisions of the Agreement. Dated: ______________________ [NAME OF TRANSFERRING SHAREHOLDER] By:___________________________ [Authorized Signature] EXHIBIT B [Effective Time], 1996 Rykoff-Sexton, Inc. 1050 Warrenville Road Lisle, Illinois 60532-5201 Re: Agreement and Plan of Merger among Rykoff-Sexton, Inc., USF Acquisition Corporation and US Foodservice, Inc. Dated February 2, 1996 ------------------------------------------------- Dear Sirs: This letter is furnished to you in connection with the planned merger (the "Merger") of US Foodservice Inc., a Delaware corporation (the "Company"), with and into USF Acquisition Corporation, a Delaware corporation ("Merger Sub") and a wholly owned subsidiary of Rykoff-Sexton, Inc. ("RSI"), pursuant to an Agreement and Plan of Merger, dated February 2, 1996, among RSI, Merger Sub and the Company (the "Merger Agreement"). The following representations are provided to you for your benefit to induce you to consummate the Merger. The undersigned understands and agrees that such representations will be relied upon by Morgan, Lewis & Bockius LLP, Shearman & Sterling, and Jones, Day, Reavis & Pogue, respectively, in connection with their opinions to be delivered pursuant to Sections 8.1(h) and 8.1(i) of the Merger Agreement with respect to the treatment of the Merger for federal income tax purposes as a tax-free reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended. Capitalized terms used but not defined herein shall have the same meanings given to such terms in the Merger Agreement. 1. The undersigned is the record and beneficial owner, under U.S. federal income tax principles, of ______ shares of Class A Common Stock, all of which will be converted into a number of RSI Common Shares in the Merger pursuant to Section 4.1 of the Merger Agreement. 2. The undersigned has no plan or intention to sell, exchange, distribute or otherwise dispose of in any manner, or enter into one or more transactions whereby the undersigned gives up substantially all of the benefits and burdens of ownership in, a number of RSI Common Shares received by the undersigned in the Merger that would exceed in the aggregate (x) the number of RSI Common Shares received by the undersigned in the Merger MULTIPLIED BY (y) the Permitted Sales Factor. For purposes of this representation, the "Permitted Sales Factor" shall be a number equal to 1.00 MINUS the Continuity Factor, and the "Continuity Factor" shall be a fraction, the numerator of which shall be the aggregate number of RSI Common Shares that must continue to be owned by the stockholders of the Company to satisfy the "continuity of interest" requirement of Treas. Reg. Section 1.368-1(b) (the "Continuity Shares Number"), and the denominator of which shall be the aggregate number of RSI Common Shares issued in the Merger and held at the Effective Time by the Shareholders and by stockholders of the Company that have executed and delivered to RSI an instrument in the form of this Exhibit B. For purposes of computing the Continuity Factor, the "Continuity Shares Number" shall be determined by applying the formula set forth on Schedule I** attached hereto. Very truly yours, ______________________________ (Print Name of Stockholder) By:___________________________ (Authorized Signature) - ----------------- ** Schedule I to Exhibit B will be identical to Schedule II to the Agreement. EX-10.40-1 18 EXHIBIT 10.40.1 Exhibit 10.40.1 ADDENDUM TO TAX AGREEMENT This Addendum to Tax Agreement (this "Addendum"), dated as of July 12, 1996, by and among Rykoff-Sexton, Inc., a Delaware corporation ("RSI"), Frank H. Bevevino ("Bevevino") and Bevevino Unitrust Partners Limited Partnership, a Pennsylvania limited partnership (the "Partnership"). W I T N E S S E T H: WHEREAS, pursuant to an Agreement and Plan of Merger, dated February 2, 1996 (the "Merger Agreement"), by and among RSI, USF Acquisition Corporation, a Delaware corporation and a wholly owned subsidiary of RSI ("Merger Sub"), and US Foodservice Inc., a Delaware corporation (the "Company"), the Company merged with and into Merger Sub on May 17, 1996; WHEREAS, it is the intention of the parties to the Merger Agreement that the Merger qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"); WHEREAS, in connection therewith, RSI, Bevevino and certain other Persons have entered into a Tax Agreement, dated May 17, 1996 (the "Tax Agreement"; capitalized terms used but not defined herein having the same meanings ascribed to such terms in the Tax Agreement); WHEREAS, Bevevino represented and warranted to RSI in the Tax Agreement that, immediately prior to the Effective Time, he was the record and beneficial owner of 276,787.9620 shares of Class A Common Stock of the Company; WHEREAS, immediately prior to the Effective Time, Bevevino was actually the record and beneficial owner of only 183,611.5380 shares of Class A Common Stock of the Company, and the Partnership was the record and beneficial owner of the remaining 93,176.4240 shares of Class A Common Stock of the Company; WHEREAS, the Partnership is not a party to the Tax Agreement; and WHEREAS, RSI and Bevevino desire that the Partnership become a party to the Tax Agreement, and the Partnership is willing to become a party to the Tax Agreement; NOW THEREFORE, in consideration of the foregoing and the mutual covenants and agreements set forth herein, the parties hereto agree as follows: Section 1. REPRESENTATIONS AND WARRANTIES OF BEVEVINO AND THE PARTNERSHIP. (a) The representations and warranties made by Bevevino in Section 6 of the Tax Agreement will be deemed effective only with respect to the 183,611.5380 shares of Class A Common Stock of the Company of which Bevevino was the record and beneficial owner immediately prior to the Effective Time, and are hereby rendered null and void with respect to the 93,176.4240 shares of Class A Common Stock of the Company of which the Partnership was the record and beneficial owner immediately prior to the Effective Time. (b) Schedule I to the Tax Agreement is hereby amended by deleting Bevevino's name and the number of shares of Class A Common Stock set forth opposite thereto, and adding the following information in place thereof: Class A Class B Name of Stockholder Common Stock Common Stock ------------------- ------------ ------------ Bevevino Unitrust Partners 93,176.4240 Limited Partnership 0 Frank H. Bevevino 183,611.5380 0 (c) Bevevino hereby remakes to RSI each of the representations and warranties set forth in Section 6 of the Tax Agreement with respect to the number of shares of Class A Common Stock set forth opposite his name in Section 1(b) hereof as if such representations and warranties were set forth herein, and further represents and warrants to RSI that such representations and warranties were true and correct at and as of the date of the Tax Agreement. In addition, Bevevino hereby makes to RSI each of the representations and warranties contained in Section 6 of the Tax Agreement, other than the representation and warranty contained in the third sentence of such Section 6, as if such representations and warranties were set forth herein but with -2- each reference to the term "this Agreement" being deemed to be a reference to "this Addendum." (d) The Partnership hereby makes to RSI each of the representations and warranties contained in Section 6 of the Tax Agreement as if such representations and warranties were set forth herein but with each reference to the term "this Agreement" being deemed to be a reference to "this Addendum." Section 2. RIGHTS AND OBLIGATIONS OF THE PARTNERSHIP. The Partnership hereby accepts and adopts and agrees to be bound by and comply with all of the terms and conditions of the Tax Agreement, for the express benefit of RSI, Bevevino and the other parties to the Tax Agreement. The Partnership shall for all purposes be deemed to be a party thereto in the same manner and to the same extent as if the Partnership had been a party thereto as of the date of the Tax Agreement. Section 3. DISTRIBUTION BY THE PARTNERSHIP. If the Partnership becomes required by the terms of its limited partnership agreement to distribute to its partners a number of RSI Common Shares received by it in the Merger in a Transfer that would otherwise be in violation of Section 1(a) of the Tax Agreement, the Partnership shall be permitted to effect such distribution provided that (i) the shares of RSI Common Stock so distributed to its partners are distributed in accordance with the partners' respective interests in the Partnership, (ii) each of such partners shall have executed and delivered to RSI in advance of such distribution a document evidencing such partner's agreement to be bound by and to comply with all of the terms and conditions of Section 1 of the Tax Agreement, which document shall be satisfactory in form and substance to RSI in its reasonable discretion, and (iii) at the written request of each such partner, which request shall specify the total number of RSI Common Shares to be distributed to such partner and such partner's pro rata share of the Restricted Shares Number determined with respect to the Partnership, RSI shall cause two stock certificates to be issued to each such partner representing such RSI Common Shares to be so distributed to such partner, one of which shall evidence a number of RSI Common Shares equal to such partner's pro rata share of the Restricted Shares Number determined with respect to the Partnership and which shall bear the legend referred to in Section 1(d) of the Tax Agreement, and one of which shall evidence the balance of the RSI Common Shares -3- to be distributed to such partner and which shall not bear the legend referred to in Section 1(d) of the Tax Agreement. Section 4. DEEMED COUNTERPART. This Addendum shall be deemed to constitute a counterpart to the Tax Agreement within the meaning of Section 9(m) thereof, and RSI and the other parties to the Tax Agreement may rely hereon. Section 5. GOVERNING LAW. This Addendum and all disputes hereunder shall be governed by and construed and enforced in accordance with the law of the State of Delaware. Section 6. NOTICES. All notices, requests, demands or other communications required by or otherwise with respect to the Tax Agreement or this Addendum shall be given in accordance with the provisions of Section 9(a) of the Tax Agreement, and, in the case of Bevevino or the Partnership, shall be given to Bevevino or the Partnership, as the case may be, at the address set forth below their respective names on the signature page to this Addendum, or to such other address as either of them may designate from time to time by notice so given. -4- IN WITNESS WHEREOF, the parties hereto have duly executed this Addendum on the date first above written. RYKOFF-SEXTON, INC. By:/s/ Mark Van Stekelenburg ------------------------- Name: Mark Van Stekelenburg Title: Chairman, President and Chief Executive Officer BEVEVINO UNITRUST PARTNERS LIMITED PARTNERSHIP By: Frank H. Bevevino Charitable Remainder Unitrust No. 2, as Its General Partner By: Frank H. Bevevino ----------------- Name: Frank H. Bevevino Title: Trustee Address: /s/ Frank H. Bevevino --------------------- FRANK H. BEVEVINO Address: -5- EX-10.41 19 POOLING AGREEMENT EXECUTION COPY - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- RYKOFF-SEXTON FUNDING CORPORATION as Company, RYKOFF-SEXTON, INC. as Servicer, and CHEMICAL BANK, as Trustee on behalf of the Certificateholders RS RECEIVABLES MASTER TRUST POOLING AGREEMENT Dated as of May 16, 1996 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TABLE OF CONTENTS PAGE ---- ARTICLE I DEFINITIONS................................ 1 1.1. Definitions...................................................... 1 1.2. Other Definitional Provisions....................................................... 23 ARTICLE II CONVEYANCE OF RECEIVABLES; ISSUANCE OF CERTIFICATES...................... 24 2.1. Conveyance of Receivables...................................................... 24 2.2. Acceptance by Trustee.......................................................... 26 2.3. Representations and Warranties of the Company Relating to the Company................................ 27 2.4. Representations and Warranties of the Company Relating to the Receivables............................ 30 2.5. Repurchase of Ineligible Receivables...................................................... 31 2.6. Purchase of Investor Certificateholders' Interest in Trust Portfolio.................................... 32 2.7. Affirmative Covenants of the Company.......................................................... 33 2.8. Negative Covenants of the Company.......................................................... 36 ARTICLE III RIGHTS OF CERTIFICATEHOLDERS AND ALLOCATION AND APPLICATION OF COLLECTIONS.............. 40 3.1. Establishment of Collection Account; Certain Allocations.................................................... 40 ARTICLE IV ARTICLE IV IS RESERVED AND MAY BE SPECIFIED IN ANY SUPPLEMENT WITH RESPECT TO THE SERIES RELATING THERETO............. 44 PAGE ---- ARTICLE V THE CERTIFICATES.............................. 44 5.1. The Certificates..................................................... 44 5.2. Authentication of Certificates..................................................... 45 5.3. Registration of Transfer and Exchange of Certificates................................................... 46 5.4. Mutilated, Destroyed, Lost or Stolen Certificates................................................... 48 5.5. Persons Deemed Owners........................................................... 49 5.6. Appointment of Paying Agent............................................................ 49 5.7. Access to List of Certificateholders' Names and Addresses............................................ 50 5.8. Authenticating Agent............................................................ 50 5.9. Tax Treatment........................................................ 52 5.10. Tender of Exchangeable Company Certificate...................................................... 52 5.11. Book-Entry Certificates..................................................... 54 5.12. Notices to Clearing Agency........................................................... 55 5.13. Definitive Certificates..................................................... 55 ARTICLE VI OTHER MATTERS RELATING TO THE COMPANY........................... 56 6.1. Liability of the Company.......................................................... 56 6.2. Limitation on Liability of the Company.......................................................... 56 6.3. Liabilities...................................................... 56 ARTICLE VII EARLY AMORTIZATION EVENTS......................... 57 7.1. Early Amortization Events........................................................... 57 7.2. Additional Rights Upon the Occurrence of Certain Events................................................. 58 ARTICLE VIII THE TRUSTEE................................ 59 8.1. Duties of Trustee.......................................................... 59 8.2. Rights of the Trustee.......................................................... 61 8.3. Trustee Not Liable for Recitals in Certificates................................................... 63 -ii- PAGE ---- 8.4. Trustee May Own Certificates..................................................... 63 8.5. Trustee's Fees and Expenses......................................................... 63 8.6. Eligibility Requirements for Trustee.......................................................... 64 8.7. Resignation or Removal of Trustee.......................................................... 64 8.8. Successor Trustee.......................................................... 65 8.9. Merger or Consolidation of Trustee.......................................................... 65 8.10. Appointment of Co-Trustee or Separate Trustee.......................................................... 66 8.11. Tax Returns.......................................................... 67 8.12. Trustee May Enforce Claims Without Possession of Certificates................................................ 67 8.13. Suits for Enforcement...................................................... 68 8.14. Rights of Investor Certificateholders to Direct Trustee................................................. 68 8.15. Representations and Warranties of Trustee.......................................................... 68 8.16. Maintenance of Office or Agency........................................................... 69 8.17. Limitation of Liability........................................................ 69 ARTICLE IX TERMINATION................................ 69 9.1. Termination of Trust; Liquidation of Receivables.................................................... 69 9.2. Clean-Up Call and Final Termination Date of Investor Certificates of any Series............................ 70 9.3. Final Payment with Respect to Any Series........................................................... 71 9.4. Company's Termination Rights........................................................... 72 ARTICLE X MISCELLANEOUS PROVISIONS........................ 72 10.1. Amendment........................................................ 72 10.2. Protection of Right, Title and Interest to Trust....................................................... 74 10.3. Limitation on Rights of Certificateholders............................................... 74 10.4. Governing Law.............................................................. 75 10.5. Notices.......................................................... 75 10.6. Severability of Provisions....................................................... 76 10.7. Assignment....................................................... 76 10.8. Certificates Nonassessable and Fully Paid............................................................. 76 10.9. Further Assurances....................................................... 76 10.10. No Waiver; Cumulative Remedies......................................................... 77 10.11. Counterparts..................................................... 77 10.12. Third-Party Beneficiaries.................................................... 77 -iii- PAGE ---- 10.13. Actions by Certificateholders............................................... 77 10.14. Merger and Integration...................................................... 77 10.15. Headings......................................................... 77 10.16. Construction of Agreement........................................................ 77 10.17. No Set-Off....................................................... 78 10.18. No Bankruptcy Petition......................................................... 78 10.19. Limitation of Liability........................................................ 78 10.20. Certain Information...................................................... 79 10.21. Inclusion of Excluded Receivables...................................................... 79 -iv- EXHIBITS Exhibit A Form of Exchangeable Company Certificate Exhibit B Form of Lockbox Agreement Exhibit C Form of Annual Opinion of Counsel Exhibit D Internal Operating Procedures Memorandum SCHEDULES Schedule 1 Receivables Schedule 2 Identification of the Trust Accounts Schedule 3 Actions with respect to Chattel Paper Schedule 4 Location of Chief Executive Office Schedule 5 Contractual Obligations APPENDICES Appendix A Description of Servicer Site Review Procedures Appendix B Description of Standby Liquidation System -v- POOLING AGREEMENT, dated as of May 16, 1996, among Rykoff-Sexton Funding Corporation, a Nevada corporation (the "COMPANY"); Rykoff-Sexton, Inc., a Delaware corporation ("RS"), in its capacity as servicer (the "SERVICER"); and Chemical Bank, a New York banking corporation, not in its individual capacity, but solely as trustee (in such capacity, the "TRUSTEE"). W I T N E S S E T H : - - - - - - - - - - WHEREAS, as of the date hereof, (i) the Company, the Servicer and the Sellers (as hereinafter defined) are entering into a Receivables Sale Agreement (as amended, supplemented or otherwise modified from time to time, the "RECEIVABLES SALE AGREEMENT") and (ii) the Company, the Servicer, certain subsidiaries of the Servicer, in their capacities as servicers of the Receivables (in such capacities, the "SUB-SERVICERS") and the Trustee are entering into a Servicing Agreement (as amended, supplemented or otherwise modified from time to time, the "SERVICING AGREEMENT"); and WHEREAS, the parties hereto wish to enter into this Agreement in order to create a master trust to which the Company will transfer all of its right, title and interest in, to and under the Receivables and other Trust Assets now or hereafter owned by the Company and such master trust shall, from time to time at the direction of the Company, issue one or more Series of Investor Certificates which shall represent interests in the Receivables and such other Trust Assets as specified herein and in the Supplement related to such Series; NOW, THEREFORE, in consideration of the premises and of the mutual covenants herein contained, the parties hereto agree as follows: I DEFINITIONS I.1. DEFINITIONS. Whenever used in this Agreement, the following words and phrases shall have the following meanings: "ACCOUNTS" shall have the meaning specified in subsection 2.1(b)(vi) of this Agreement. "ADJUSTED INVESTED AMOUNT" shall have, with respect to any Outstanding Series, the meaning assigned to such term in the related Supplement for such Series. "AFFILIATE" shall mean, with respect to any specified Person, any other Person which, directly or indirectly, is in control of, is controlled by, or is under common control 2 with, such Person; PROVIDED that a Person shall not be deemed an Affiliate of another Person solely by reason of an individual serving as an officer or director of such other Person. For purposes of this definition, "control" of a Person means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities or otherwise, and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "AGENT" shall mean, with respect to any Series, the Person or Persons, if any, so designated in the related Supplement. "AGGREGATE ADJUSTED INVESTED AMOUNT" shall mean, with respect to any date of determination, the sum of the Adjusted Invested Amounts with respect to all Outstanding Series on such date of determination. "AGGREGATE ALLOCATED RECEIVABLES AMOUNT" shall mean, with respect to any date of determination, the sum of the Allocated Receivables Amounts with respect to all Outstanding Series on such date of determination. "AGGREGATE DAILY COLLECTIONS" shall mean, with respect to any Business Day, the aggregate amount of all Collections deposited into the Collection Account on such day. "AGGREGATE INVESTED AMOUNT" shall mean, at any date of determination, the sum of the Invested Amounts with respect to all Outstanding Series on such date of determination. "AGGREGATE OVERCONCENTRATION AMOUNT" shall mean, with respect to any date of determination, the sum of the Overconcentration Amounts of all Eligible Obligors at the end of the preceding Business Day. "AGGREGATE RECEIVABLES AMOUNT" shall mean, with respect to any date of determination, (i) the aggregate Principal Amount of all Eligible Receivables in the Trust at the end of the Business Day immediately preceding such date MINUS (ii) the Aggregate Overconcentration Amount for such date. "AGGREGATE TARGET RECEIVABLES AMOUNT" shall mean, with respect to any date of determination, the sum of the Target Receivables Amounts with respect to all Outstanding Series on such date of determination. "AGREEMENT" shall mean this Pooling Agreement and all amendments and modifications hereof and supplements hereto, and including, unless expressly stated otherwise, each Supplement. "ALLOCABLE CHARGED-OFF AMOUNT" shall have, with respect to any Series, the meaning specified in subsection 3.1(e) and in any Supplement for such Series. 3 "ALLOCABLE RECOVERIES AMOUNT" shall have, with respect to any Series, the meaning specified in subsection 3.1(e) and in any Supplement for such Series. "ALLOCATED RECEIVABLES AMOUNT" shall mean, with respect to any Outstanding Series, the meaning assigned to such term in the related Supplement for such Series. "AMORTIZATION PERIOD" shall mean, with respect to any Outstanding Series, the meaning assigned to such term in the related Supplement for such Series. "BOOK-ENTRY CERTIFICATES" shall mean the Certificates issued to a Clearing Agency to facilitate the use of book entries by such Clearing Agency to evidence ownership of beneficial interests in the Certificates, transfers of which beneficial interests shall be made through book entries by such Clearing Agency, all as described in Section 5.11; PROVIDED, HOWEVER, that after the occurrence of a condition whereupon book-entry registration and transfer are no longer permitted and Definitive Certificates are issued to the Certificate Book-Entry Holders, such Certificates shall no longer be "Book-Entry Certificates". "BUSINESS DAY" shall mean any day other than (i) a Saturday or a Sunday or (ii) another day on which commercial banking institutions or trust companies in the State of New York or in the city where the Corporate Trust Office is located, are authorized or obligated by law, executive order or governmental decree to be closed; PROVIDED that, when used in connection with the calculation of Certificate Rates which are determined by reference to LIBOR, "Business Day" shall mean any Business Day on which dealings in Dollars between banks may be carried on in London, England and New York, New York. "BUSINESS DAY RECEIVED" shall have the meaning specified in subsection 2.3(e) of the Servicing Agreement. "CASH DILUTION PAYMENT" shall have the meaning specified in subsection 4.6(a) of the Servicing Agreement. "CERTIFICATE" shall mean one of any Series of Investor Certificates, the Exchangeable Company Certificate or, if applicable, any Subordinated Company Certificate. "CERTIFICATE BOOK-ENTRY HOLDER" shall mean, with respect to a Book- Entry Certificate, the Person who is listed on the books of the Clearing Agency, or on the books of a Person maintaining an account with such Clearing Agency, as the beneficial owner of such Book-Entry Certificate (directly or as an indirect participant, in accordance with the rules of such Clearing Agency). "CERTIFICATE RATE" shall mean with respect to any Series and Class of Certificates, the percentage interest rate (or formula on the basis of which such interest rate shall be determined) stated in the applicable Supplement. 4 "CERTIFICATE REGISTER" shall mean the register maintained pursuant to Section 5.3, providing for the registration of the Certificates and transfers and exchanges thereof. "CERTIFICATEHOLDER" shall mean the Person in whose name a Certificate is registered in the Certificate Register. "CERTIFICATEHOLDERS' INTEREST" shall have the meaning specified in subsection 3.1(b). "CHARGED-OFF RECEIVABLES" shall mean all Receivables (or portions thereof) which, in accordance with the Policies of the applicable Seller, have or should have been written off as uncollectible, including without limitation the Receivables of any Obligor which becomes the subject of any voluntary or involuntary bankruptcy proceeding. "CLASS" shall mean, with respect to any Series, any one of the classes of Certificates of that Series as specified in the related Supplement. "CLEAN-UP CALL PERCENTAGE" shall have, with respect to any Series, the meaning specified in the related Supplement for such Series. "CLEAN-UP CALL REPURCHASE PRICE" shall have the meaning specified in Section 9.2. "CLEARING AGENCY" shall mean each organization registered as a "clearing agency" pursuant to Section 17A of the Securities Exchange Act of 1934, as amended. "CLEARING AGENCY PARTICIPANT" shall mean a broker, dealer, bank, other financial institution or other Person for whom from time to time a Clearing Agency effects book-entry transfers and pledges of securities deposited with such Clearing Agency. "COLLECTION ACCOUNT" shall have the meaning specified in subsection 3.1(a). "COLLECTIONS" shall mean all collections and all amounts received in respect of the Receivables, including Recoveries, Seller Repurchase Payments, Seller Adjustment Payments, Servicer Indemnification Amounts paid by the Servicer and any other payments received in respect of Dilution Adjustments, together with all collections received in respect of the Related Property in the form of cash, checks, wire transfers or any other form of cash payment, and all proceeds of Receivables and collections thereof (including, without limitation, collections constituting an account or general intangible or evidenced by a note, instrument, security, contract, security agreement, chattel paper or other evidence of indebtedness or security, whatever is received upon the sale, exchange, collection or other disposition of, or any indemnity, warranty or guaranty payable in respect of, the foregoing and all "proceeds", as defined in Section 9-306 of the UCC as in effect in the State of New York, of the foregoing). "COMPANY" shall mean Rykoff-Sexton Funding Corporation, a Nevada corporation. 5 "COMPANY COLLECTION SUBACCOUNT" shall have the meaning specified in subsection 3.1(a). "COMPANY EXCHANGE" shall have the meaning specified in subsection 5.10(a). "COMPANY INTEREST" shall have the meaning specified in subsection 3.1(b). "CONTRACTUAL OBLIGATION" shall mean, as to any Person, any provision of any security issued by such Person or of any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its property is bound. "CORPORATE TRUST OFFICE" shall mean the principal office of the Trustee at which at any particular time its corporate trust business shall be administered, which office at the date of the execution of this Agreement is located at 450 West 33rd St., 15th Floor, New York, New York 10001 (Attention: Advanced Structured Products). "CREDIT AGREEMENT" shall mean the Credit Agreement, dated as of May 17, 1996, among RS, the various financial institutions parties thereto, Bank of America National Trust and Savings Association, as Administrative Agent, Swing Line Lender and Issuing Bank and The Chase Manhattan Bank, N.A., as Documentation Agent, as the same may be amended, supplemented or otherwise modified from time to time. "CREDIT ENHANCER" shall mean, with respect to any Outstanding Series, that Person, if any, designated as such in the applicable Supplement. "CUT-OFF DATE" shall mean the close of business on May 10, 1996. "DAILY REPORT" shall have the meaning specified in subsection 4.1 of the Servicing Agreement. "DEFAULTED RECEIVABLE" shall mean, as of any date of determination, any Receivable (a) which is unpaid in whole or in part for more than 91 days after its original invoice date or (b) which is, as of such date of determination, a Charged-Off Receivable. "DEFINITIVE CERTIFICATES" shall have the meaning specified in Section 5.13. "DEPOSIT DATE" shall have the meaning specified in subsection 3.1(d). "DEPOSITORY" shall mean, with respect to any Series, the Clearing Agency designated as the "Depository" in the related Supplement. "DEPOSITORY AGREEMENT" shall mean, with respect to any Series, an agreement among the Company, the Trustee and a Clearing Agency, or a letter of undertaking by the 6 Company and the Trustee, in each case in a form reasonably satisfactory to the Trustee and the Company. "DILUTION ADJUSTMENTS" shall mean any rebates, discounts, refunds, payments or other adjustments (including, without limitation, as a result of the application of any special or other discounts or any reconciliations) in respect of any Receivable, the amount owing for any returns (including, without limitation, as a result of the return of any defective goods) or cancellations and the amount of any other reduction of any payment under any Receivable, in each case granted or made by the applicable Seller or the Servicer to the related Obligor, PROVIDED that a "Dilution Adjustment" does not include any Charged-Off Receivable. "DISTRIBUTION DATE" shall mean, except as otherwise set forth in the applicable Supplement, the 20th day of the month, beginning on June 20, 1996, or if such 20th day is not a Business Day, the next succeeding Business Day. "DOLLARS," "U.S. DOLLARS" and "$" shall mean dollars in lawful currency of the United States of America. "DUFF & PHELPS" shall mean Duff & Phelps Credit Rating Co. or any successor thereto. "EARLY AMORTIZATION EVENT" shall have, with respect to any Series, the meaning specified in Section 7.1 of this Agreement (without taking into account any Supplements) and in any Supplement for such Series. "EARLY AMORTIZATION PERIOD" shall have, with respect to any Series, the definition assigned to such term in Section 7.1 of this Agreement and in any Supplement for such Series. "EARLY TERMINATION" shall have the meaning assigned to such term in the Receivables Sale Agreement. "ELIGIBLE INSTITUTION" shall mean a depositary institution or trust company (which may include the Trustee and its affiliates) organized under the laws of the United States of America or any one of the states thereof or the District of Columbia; PROVIDED, HOWEVER, that at all times (i) such depositary institution or trust company is a member of the Federal Deposit Insurance Corporation, the certificates of deposit or unsecured and uncollateralized debt obligations of such depositary institution or trust company are rated in one of the two highest long-term or highest short-term rating category by each Rating Agency and (ii) such depositary institution or trust company has a combined capital and surplus of at least $100,000,000. 7 "ELIGIBLE INVESTMENTS" shall mean any deposit accounts, book-entry securities, negotiable instruments or securities represented by instruments in bearer or registered form which evidence: (a) direct obligations of, and obligations fully guaranteed as to timely payment by, the United States of America; (b) federal funds, demand deposits, time deposits or certificates of deposit of any depository institution or trust company incorporated under the laws of the United States of America or any state thereof (or any domestic branch of a foreign bank) and subject to supervision and examination by Federal or State banking or depository institution authorities; PROVIDED, HOWEVER, that at the time of the investment or contractual commitment to invest therein the commercial paper or other short-term unsecured debt obligations (other than such obligations the rating of which is based on the credit of a Person other than such depository institution or trust company) thereof shall have a credit rating from each of the Rating Agencies rating such investment in the highest investment category granted thereby; (c) commercial paper rated, at the time of the investment or contractual commitment to invest therein, in the highest rating category by each Rating Agency rating such commercial paper; (d) investments in money market funds (including funds for which the Trustee or any of its Affiliates is investment manager or adviser) rated in the highest rating category by each Rating Agency rating such money market fund (PROVIDED, that if such Rating Agency is S&P, such rating shall be AAAm-G); (e) bankers' acceptances issued by any depository institution or trust company referred to in clause (b) above; (f) repurchase obligations with respect to any security that is a direct obligation of, or fully guaranteed by, the United States of America or any agency or instrumentality thereof the obligations of which are backed by the full faith and credit of the United States of America, in either case entered into with a depository institution or trust company (acting as principal) described in clause (b) above; or (g) any other investment upon satisfaction of the Rating Agency Condition with respect thereto. "ELIGIBLE OBLIGOR" shall mean, as of any date of determination, each Obligor in respect of a Receivable that satisfies the following eligibility criteria: (a) it is a resident of the United States, its territories or possessions; 8 (b) if it is the United States federal government, or any subdivision thereof, or any agency, department or instrumentality thereof (a "FEDERAL GOVERNMENT OBLIGOR"), or if it is a state or local government, or any subdivision thereof, or any agency, department, or instrumentality thereof (a "STATE/LOCAL GOVERNMENT OBLIGOR"), then such Obligor shall be subject to the first proviso contained in the definition of "Overconcentration Amount"; (c) it is not a Seller or an Affiliate of a Seller; and (d) it is not the subject of any voluntary or involuntary bankruptcy proceeding; PROVIDED, HOWEVER, that if 25% or more of the Principal Amount of Receivables of an Obligor (measured by the Principal Amount of Receivables of such Obligor in the Trust) is reported as being aged 121 days or more after the respective original invoice dates of such Receivables as at the end of the Settlement Period immediately preceding the most recent Settlement Report Date (commencing with the Settlement Report Date occurring on August 15, 1996), such Obligor shall not be deemed an Eligible Obligor until such time as the Servicer furnishes the Rating Agencies with a report (which may be part of a Daily Report or a Monthly Settlement Statement) indicating that less than 25% of the Principal Amount of Receivables of such Obligor then in the Trust are aged 121 days or more after the respective original invoice dates of such Receivables. "ELIGIBLE RECEIVABLE" shall mean, as of any date of determination, each Receivable owing by an Eligible Obligor that as of such date satisfies the following eligibility criteria: (a) it constitutes either (i) an account within the meaning of Section 9-106 of the UCC of the State the law of which governs the perfection of the interest granted in it, (ii) chattel paper within the meaning of Section 9-105 of such UCC, subject, in the case of chattel paper, to compliance with the procedures set forth in Schedule 3 hereto; or (iii) a general intangible (including, without limitation, to the extent that such Receivable includes interest, finance charges, returned check or late charges on sales or similar taxes) within the meaning of Section 9-106 of such UCC; (b) it is not a Defaulted Receivable; (c) the goods related to it shall have been shipped or the services related to it shall have been performed and such Receivable shall have been billed to the related Obligor; (d) it is denominated and payable only in U.S. Dollars in the United States; (e) it arose in the ordinary course of business from the sale of goods, products or services of the relevant Seller and in accordance with the Policies of such Seller and, at such date of determination, no Early Termination has occurred with respect to such Seller; (f) (i) it does not contravene any applicable law, rule or regulation and the applicable Seller is not in violation of any law, rule or regulation in connection with it, in 9 each case which in any way renders such Receivable unenforceable or would otherwise impair in any material respect the collectibility of such Receivable and (ii) it is not subject to any investigation or proceeding known by such Seller that would reasonably be expected to adversely affect the payment or enforceability thereof; (g) if the Company or the Trust is not excluded from the definition of "investment company" pursuant to Rule 3a-7 under the 1940 Act, it is an account receivable representing all or part of the sales price of merchandise, insurance or services within the meaning of Section 3(c)(5) of the 1940 Act; (h) it is not a Receivable purchased by a Seller from any Person and is not an Excluded Receivable; (i) it is not a Receivable for which the applicable Seller has established an offsetting specific reserve; PROVIDED that a Receivable subject only in part to the foregoing shall be an Eligible Receivable to the extent not so subject; (j) it is not a Receivable with original payment terms in excess of 60 days from its original invoice date, or in respect of which the applicable Seller has (i) entered into an arrangement with the Obligor pursuant to which payment of any portion of the purchase price has been extended or deferred, whether by means of a promissory note or by any other means, to a date more than 60 days from its original invoice date or (ii) altered the basis of the aging from the initial due date for payment such that the final due date extends to a date more than 60 days from its original invoice date or (iii) otherwise made any modification except in the ordinary course of business and consistent with the Policies of such Seller; (k) all required consents, approvals or authorizations necessary for the creation and enforceability of such Receivable and the effective assignment and sale thereof by the applicable Seller to the Company and by the Company to the Trust shall have been obtained with respect to such Receivable, PROVIDED that with respect to Receivables owing by Federal Government Obligors or State/Local Government Obligors, such Receivables shall constitute Eligible Receivables notwithstanding the failure of such Receivables to satisfy this clause (k) except to the extent such failure adversely affects the collectibility of such Receivables by the Company or the Trust; (l) the applicable Seller is not in default in any material respect under the terms of the contract, if any, from which such Receivable arose; (m) all right, title and interest in it has been validly sold by the applicable Seller to the Company pursuant to the Receivables Sales Agreement; (n) the Company or the Trust will have legal and beneficial ownership therein free and clear of all Liens other than such Liens described in clauses (i) and (iv) of the definition of Permitted Liens and such Receivable has been the subject of either a valid 10 transfer from the Company to the Trust or, alternatively, the grant of a first priority perfected security interest therein to the Trust free and clear of all Liens other than such Liens described in clauses (i) and (v) of the definition of Permitted Liens; (o) it is not subject to any dispute in whole or in part or to any offset, counterclaim, defense, rescission, recoupment or subordination; PROVIDED that a Receivable subject only in part to any of the foregoing shall be an Eligible Receivable to the extent not so subject; (p) it is at all times the legal, valid and binding obligation of the Obligor thereon, enforceable against such Obligor to pay the full Principal Amount thereof in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or law); (q) as of the related Receivables Purchase Date, neither the Company nor the applicable Seller has (i) taken any action that would impair the rights of the Trustee or the Investor Certificateholders therein or (ii) failed to take any action that was necessary to avoid impairing the rights therein of the Trustee or Investor Certificateholders; (r) each of the representations and warranties made in the Receivables Sale Agreement by the applicable Seller with respect to such Receivable is true and correct in all material respects; and (s) at the time such Receivable was sold by the applicable Seller to the Company under the Receivables Sale Agreement, no event described in subsection 6.01(g) of the Receivables Sale Agreement (without giving effect to any requirement as to the passage of time) had occurred with respect to such Seller; "ELIGIBLE SUCCESSOR SERVICER" shall mean a Person which, at the time of its appointment as Servicer, (i) is legally qualified and has the corporate power and authority to service the Receivables transferred to the Trust, (ii) has demonstrated the ability to service a portfolio of similar receivables in accordance with the standards set forth in subsection 6.2(c) of the Servicing Agreement and (iii) has a combined capital and surplus of at least $5,000,000. "ENHANCEMENT" shall mean, with respect to any Series, (i) the funds on deposit in or credited to any bank account (or subaccount thereof) of the Trust, (ii) any surety arrangement, any letter of credit, guaranteed rate agreement, maturity guaranty facility, tax protection agreement, interest rate swap, currency swap or other contract, agreement or arrangement, in each case for the benefit of any Certificateholders of such Series, as designated in the applicable Supplement and (iii) the subordination of one Class of Certificates in a Series to another class in such Series or the subordination of any Certificate held by the Company to the Investor Certificates of such Series. 11 "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended. "EXCHANGE DATE" shall have the meaning, with respect to any Series issued pursuant to a Company Exchange, specified in Section 5.10. "EXCHANGE NOTICE" shall have the meaning, with respect to any Series issued pursuant to a Company Exchange, specified in Section 5.10. "EXCHANGEABLE COMPANY CERTIFICATE" shall mean the certificate executed by the Company and authenticated by the Trustee, substantially in the form of Exhibit A and exchangeable as provided in Section 5.10. "EXCLUDED RECEIVABLE" shall mean, subject to Section 10.21 hereof, the indebtedness and payment obligations of any Person (i) to any Seller arising from a sale of merchandise or the provision of services by such Seller from its contract and design business, (ii) to the manufacturing division of any Seller at the manufacturing facilities of such Seller located in Los Angeles, California, Indianapolis, Indiana or Englewood, New Jersey arising from the sale of products manufactured by such division directly to unaffiliated third parties, (iii) to the Continental Foods operation of John Sexton & Co., a Delaware corporation ("SEXTON"), located in Baltimore, Maryland, (iv) to the Lake Mills, Wisconsin operation or the San Francisco International Cheese Imports operation (located in San Francisco, California) of the San Francisco International Cheese Imports division of RS, and (v) to the Olfisco Specialty Products division of Sexton located in Minneapolis, Minnesota; PROVIDED that in the event that any Excluded Receivable is included in a Daily Report, for purposes of Section 2.1 hereof and the definition of Collections, such receivable shall not be an Excluded Receivable. "FEDERAL GOVERNMENT OBLIGOR" shall have the meaning specified in the definition of "Eligible Obligor" hereunder. "FORCE MAJEURE DELAY" shall mean, with respect to any Servicing Party, any cause or event which is beyond the control and not due to the negligence of such Servicing Party which delays, prevents or prohibits the Servicer's delivery of Daily Reports and/or Monthly Settlement Statements, including, without limitation, acts of God or the elements and fire, but excluding strikes by any Servicing Party's employees; PROVIDED that no such cause or event shall be deemed to be a Force Majeure Delay unless the Servicer shall have given the Company and the Trustee written notice promptly after the beginning of such delay. "FRACTIONAL UNDIVIDED INTEREST" shall mean the fractional undivided interest in the Certificateholders' Interest evidenced by an Investor Certificate. 12 "GAAP" shall mean generally accepted accounting principles in the United States of America as in effect from time to time. "GENERAL OPINION" shall mean, with respect to any action, an Opinion of Counsel to the effect that (A) such action has been duly authorized by all necessary corporate action on the part of the Servicer, the applicable Seller or Sellers or the Company, as the case may be, (B) any agreement executed in connection with such action constitutes a legal, valid and binding obligation of the Servicer, the applicable Seller or Sellers or the Company, as the case may be, enforceable in accordance with the terms thereof, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereinafter in effect, affecting the enforcement of creditors' rights and except as such enforceability may be limited by general principles of equity (whether considered in a proceeding at law or in equity) and (C) any condition precedent to any such action specified in the applicable agreement, if any, has been complied with, which opinion in the case of this clause (C) may, to the extent that such opinion concerns questions of fact, rely on an Officer's Certificate with respect to such questions of fact. "GOVERNMENTAL AUTHORITY" shall mean any nation or government, any state or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "INDEBTEDNESS" shall mean, with respect to any Person at any date, (a) all indebtedness of such Person for borrowed money, (b) any obligation owed for the deferred purchase price of property or services which purchase price is evidenced by a note or similar written instrument, (c) notes payable and drafts accepted representing extensions of credit whether or not representing obligations for borrowed money, (d) that portion of obligations of such Person under capital leases which is properly classified as a liability on a balance sheet in conformity with GAAP and (e) all Indebtedness referred to in clauses (a) through (d) above of another Person secured by any Lien on any property owned by such Person even though such Person has not assumed or otherwise become liable for the payment thereof. "INDEPENDENT PUBLIC ACCOUNTANTS" means any independent certified public accountants of nationally recognized standing which constitute one of the accounting firms commonly referred to as the "big six" accounting firms (or any successor thereto); PROVIDED that such firm is independent with respect to the Servicer within the meaning of Rule 2-01(b) of Regulation S-X under the Securities Act. "INELIGIBLE RECEIVABLE" shall have the meaning specified in Section 2.5. "INITIAL CLOSING DATE" shall mean May 17, 1996. "INITIAL INVESTED AMOUNT" shall mean, with respect to any Outstanding Series, the meaning assigned to such term in the related Supplement for such Series. 13 "INSOLVENCY EVENT" shall mean the occurrence of any one or more of the Early Amortization Events specified in paragraph (a) of Section 7.1. "INTERNAL OPERATING PROCEDURES MEMORANDUM" shall mean the internal operating procedures memorandum prepared by the Trustee as set forth in Exhibit D hereto. "INTERNAL REVENUE CODE" shall mean the Internal Revenue Code of 1986, as amended from time to time. "INVESTED AMOUNT" shall mean, with respect to any Outstanding Series, the meaning assigned to such term in the related Supplement for such Series. "INVESTED PERCENTAGE" shall mean, with respect to any Outstanding Series, the meaning assigned to such term in the related Supplement for such Series. "INVESTMENT EARNINGS" shall have the meaning specified in subsection 3.1(c). "INVESTOR CERTIFICATEHOLDER" shall mean the holder of record of, or the bearer of, an Investor Certificate. "INVESTOR CERTIFICATES" shall mean the Certificates executed by the Company and authenticated by or on behalf of the Trustee, substantially in the form attached to the applicable Supplement, but shall not include the Exchangeable Company Certificate, any Subordinated Company Certificate or any other Certificate held by the Company. "ISSUANCE DATE" shall mean, with respect to any Series, the date of issuance of such Series, or the date of any increase to the Invested Amount of such Series, as specified in the related Supplement. "LIEN" shall mean, with respect to any asset, (a) any mortgage, deed of trust, lien, pledge, encumbrance, charge or security interest in or on such asset, (b) the interest of a vendor or a lessor under any conditional sale agreement, capital lease or title retention agreement relating to such asset and (c) in the case of securities, any purchase option, call or other similar right of a third party with respect to such securities; PROVIDED, HOWEVER, that if a lien is imposed under Section 412(n) of the Internal Revenue Code or Section 302(f) of ERISA for a failure to make a required installment or other payment to a plan to which Section 412(n) of the Internal Revenue Code or Section 302(f) of ERISA applies, then such lien shall not be treated as a "Lien" from and after the time any Person who is obligated to make such payment pays to such plan the amount of such lien determined under Section 412(n)(3) of the Internal Revenue Code or Section 302(f)(3) of ERISA, as the case may be, and provides to the Trustee and any Agent a written statement of the amount of such lien together with written evidence of payment of such amount, or such lien expires pursuant to Section 412(n)(4)(B) of the Internal Revenue Code or Section 302(f)(4)(B) of ERISA. 14 "LOCKBOX" shall mean the post office boxes listed on Schedule III to the Receivables Sale Agreement to which the Obligors are instructed to remit payments on the Receivables and/or such other post office boxes as may be established pursuant to Section 2.3 of the Servicing Agreement. "LOCKBOX ACCOUNT" shall mean the intervening account used by a Lockbox Processor for deposit of funds received in a Lockbox prior to their transfer to the Collection Account. "LOCKBOX AGREEMENT" shall mean a lockbox agreement in the form set forth as Exhibit B. "LOCKBOX PROCESSOR" shall mean the depositary institution or processing company (which may be the Trustee) which processes payments on the Receivables sent by the Obligors thereon forwarded to a Lockbox. "MATERIAL ADVERSE EFFECT" shall mean (i) with respect to a Seller or a Servicing Party, (a) a material impairment of the ability of such Seller or such Servicing Party, as the case may be, to perform its obligations under the Transaction Documents, (b) a material impairment of the validity or enforceability of any of the Transaction Documents against such Seller or such Servicing Party, (c) a material impairment of the collectibility of the Receivables taken as a whole or (d) a material impairment of the interests, rights or remedies of the Trustee or the Investor Certificateholders under or with respect to the Transaction Documents or the Receivables taken as a whole or (ii) with respect to the Company, (a) a material impairment of the ability of the Company to perform its obligations under any Transaction Document to which it is a party, (b) a material impairment of the validity or enforceability of any of the Transaction Documents against the Company, (c) a material impairment of the collectibility of the Receivables taken as a whole or (d) a material impairment of the interests, rights or remedies of the Trustee or the Investor Certificateholders under or with respect to the Transaction Documents or the Receivables taken as a whole. "MONTHLY SERVICING FEE" shall have the meaning specified in subsection 2.5(a) of the Servicing Agreement. "MONTHLY SETTLEMENT STATEMENT" shall have the meaning specified in Section 4.2 of the Servicing Agreement. "1940 ACT" shall mean the Investment Company Act of 1940, as amended. "OBLIGOR" shall mean, with respect to any Receivable, the party obligated to make payments with respect to such Receivable, including any guarantor thereof. 15 "OFFICER'S CERTIFICATE" shall mean, unless otherwise specified in this Agreement, a certificate signed by the Chairman of the Board, Vice Chairman of the Board, President, Chief Financial Officer, any Vice President or Treasurer of the Servicer or the Company, as the case may be, or, in the case of a Successor Servicer, a certificate signed by a Vice President and the financial controller (or an officer holding an office with equivalent or more senior responsibilities) of such Successor Servicer. "OPINION OF COUNSEL" shall mean a written opinion or opinions of one or more counsel (who may be internal counsel) to the Company or the Servicer, designated by the Company or the Servicer, as the case may be, which is reasonably acceptable to the Trustee. "OPTIONAL TERMINATION NOTICE" shall have, with respect to any Series, the meaning specified in the related Supplement for such Series. "OUTSTANDING SERIES" shall mean, at any time, a Series issued pursuant to an effective Supplement for which the Series Termination Date for such Series has not occurred. "OVERCONCENTRATION AMOUNT" shall mean, at any date with respect to an Eligible Obligor, the Principal Amount of Eligible Receivables due from such Obligor at such date which, expressed as a percentage of the Principal Amount of all Eligible Receivables in the Trust at such date, exceeds the percentage set forth below for the applicable category of that Obligor at such date (or such higher percentage as is acceptable to the Agents and satisfies the Rating Agency Condition): MINIMUM RATING S&P Duff & Phelps Percentage --- ------------- ---------- A-1+ or AA- D-1+ or AA- 15% A-1 or A+ D-1 or A+ 15% A-2 or BBB+ D-2 or BBB+ 7.5% A-3 or BBB- D-3 or BBB- 5% Not rated/other Less than D-3 or BBB- 3% /Not rated ; PROVIDED, HOWEVER, (i) that all Eligible Obligors that are Affiliates of each other shall be deemed to be a single Eligible Obligor to the extent the Servicer knows or has reason to know of the affiliation and in that case, the applicable debt rating for such group of Obligors shall be the debt rating of the ultimate parent of the group, (ii) with respect to all 16 Eligible Obligors that are Federal Government Obligors, the Overconcentration Amount shall mean the aggregate Principal Amount of Eligible Receivables due from all such Obligors which exceeds 3% of the Principal Amount of all Eligible Receivables and (iii) with respect to all Eligible Obligors that are State/Local Government Obligors, the Overconcentration Amount shall mean the aggregate Principal Amount of Eligible Receivables due from all such Obligors which exceeds 3% of the Principal Amount of all Eligible Receivables; PROVIDED FURTHER that the debt ratings set forth under the column headed "Duff & Phelps" in the above table and the references in the immediately succeeding paragraph to Duff & Phelps shall apply only if Duff & Phelps is a Rating Agency under any Supplement for an Outstanding Series. The percentage applicable to any Obligor (or the ultimate parent of the affiliated group of which such Obligor is a member, as the case may be) will be the percentage associated with the lower of such Obligor's (or such ultimate parent's, as the case may be) short-term senior debt rating issued by S&P and Duff & Phelps; PROVIDED THAT: (i) if such short-term debt is rated only by S&P, the applicable percentage will be the percentage associated with the rating issued by S&P and (ii) if S&P issues no short- term rating with respect to such Obligor (or such ultimate parent, as the case may be), then the percentage applicable to such Obligor (or such ultimate parent, as the case may be) shall be the percentage associated with the categories "Not rated/other" and "Less than D-3 or BBB-/Not rated." The ratings specified in the table are minimums for each percentage category, so that a rating not shown in the table falls in the category associated with the highest rating shown in the table that is lower than that rating. "PAYING AGENT" shall mean any paying agent and co-paying agent appointed pursuant to Section 5.6 and, unless otherwise specified in the related Supplement of any Outstanding Series and with respect to such Series, shall initially be the Trustee. "PERMITTED LIENS" shall mean, at any time, for any Person: (i) Liens created pursuant to this Agreement or the Receivables Sale Agreement; (ii) Liens for taxes, assessments or other governmental charges or levies not yet due and payable or if such Person shall currently be contesting the validity thereof in good faith by appropriate proceedings and with respect to which reserves in conformity with GAAP have been provided on the books of such Person; (iii) Liens on a Receivable arising as a result of offsetting specific reserves and rights of set-off, counterclaim or other defenses with respect to such Receivable; (iv) Liens on returned goods arising under the Perishable Agricultural Commodities Act and the Packers and Stockyard Act; and 17 (v) Any other Liens securing obligations not in excess of $50,000 in the aggregate at any one time outstanding. "PERSON" shall mean any individual, partnership, corporation, business trust, joint stock company, trust, unincorporated association, joint venture, Governmental Authority or other entity of whatever nature. "POLICIES" shall mean, with respect to each Seller, the credit and collection policies of such Seller, copies of which have been previously delivered to the Trustee, as the same may be amended, supplemented or otherwise modified from time to time in accordance with the Transaction Documents. "POOLING AND SERVICING AGREEMENTS" shall mean, collectively, this Agreement, the Servicing Agreement and each Supplement for an Outstanding Series. "POTENTIAL EARLY AMORTIZATION EVENT" shall mean an event which, with the giving of notice and/or the lapse of time, would constitute an Early Amortization Event hereunder or under any Supplement. "POTENTIAL SERVICER DEFAULT" shall mean an event which, with the giving of notice and/or the lapse of time, would constitute a Servicer Default hereunder or under any Supplement. "PREPAYMENT REQUEST" shall have, with respect to any Series, the meaning specified in the related Supplement. "PRINCIPAL AMOUNT" shall mean, with respect to any Receivable, the amount due thereunder. "PRINCIPAL TERMS" shall have the meaning, with respect to any Series issued pursuant to a Company Exchange, specified in subsection 5.10(c). "RATING AGENCY" shall mean, with respect to each Outstanding Series, any rating agency or agencies designated as such in the related Supplement; PROVIDED that in the event that no Outstanding Series has been rated, then for purposes of the definitions of "Eligible Institution" and "Eligible Investments", "RATING AGENCY" shall mean S&P and references to "each Rating Agency" shall refer solely to S&P. "RATING AGENCY CONDITION" shall mean, subject to the applicable Supplement, with respect to any action, that each Rating Agency shall have notified the Company, the Servicer, any Agent and the Trustee in writing that such action will not result in a reduction or withdrawal of the rating of any Outstanding Series or any Class of any such Outstanding Series with respect to which it is a Rating Agency. 18 "RECEIVABLE" shall mean the indebtedness and payment obligations of any Person to a Seller (including, without limitation, obligations constituting an account or general intangible or evidenced by a note, instrument, contract, security agreement, chattel paper or other evidence of indebtedness or security) arising from a sale of merchandise or services by such Seller, including, without limitation, any right to payment for goods sold or for services rendered, and including the right to payment of any interest, sales taxes, finance charges, returned check or late charges and other obligations of such Person with respect thereto; PROVIDED that, except as otherwise expressly provided, for all purposes hereunder and under the other Transaction Documents, "RECEIVABLES" shall not include Excluded Receivables. "RECEIVABLES PURCHASE DATE" shall mean, with respect to any Receivable, the Business Day on which the Company purchases such Receivable from the applicable Seller and transfers such Receivable to the Trust. "RECEIVABLES SALE AGREEMENT" shall mean the Receivables Sale Agreement, dated as of the date hereof, among the Sellers, the Servicer and the Company, as buyer, as amended, supplemented or otherwise modified from time to time in accordance with the Transaction Documents. "RECORD DATE" shall mean, with respect to any Series, the date specified as such in the applicable Supplement. "RECOVERIES" shall mean all amounts collected (net of out-of-pocket costs of collection) in respect of Charged-Off Receivables. "RELATED PROPERTY" shall mean, with respect to each Receivable: (a) all of the applicable Seller's interest in the goods (including returned goods), if any, relating to the sale which gave rise to such Receivable; (b) all other security interests or Liens, and the applicable Seller's interest in the property subject thereto, from time to time purporting to secure payment of such Receivable, together with all financing statements signed by an Obligor describing any collateral securing such Receivable; and (c) all guarantees, insurance, letters of credit and other agreements or arrangements of whatever character from time to time supporting or securing payment of such Receivable; in the case of clauses (b) and (c), without limitation, whether pursuant to the contract related to such Receivable or otherwise or pursuant to any obligations evidenced by a note, instrument, contract, security agreement, chattel paper or other evidence of indebtedness or security and the proceeds thereof. 19 "REPORTED DAY" shall have the meaning specified in Section 4.1 of the Servicing Agreement. "REPURCHASE OBLIGATION DATE" shall have the meaning specified in subsection 2.5(a). "REQUIREMENT OF LAW" for any Person shall mean the certificate of incorporation and by-laws or other organizational or governing documents of such Person, and any law, treaty, rule or regulation, or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject. "RESPONSIBLE OFFICER" shall mean (i) when used with respect to the Trustee, any officer within the Corporate Trust Office of the Trustee including any Vice President, any Assistant Vice President, Trust Officer or Assistant Trust Officer or any other officer of the Trustee customarily performing functions similar to those performed by any of the above designated officers and (ii) when used with respect to any other Person, the Chairman of the Board, President, Chief Financial Officer, any Vice President or Treasurer of such Person. "REVOLVING PERIOD" shall mean, with respect to any Outstanding Series, the meaning assigned to such term in the related Supplement for such Series. "S&P" shall mean Standard & Poor's Ratings Services, or any successor thereto. "SECURITIES ACT" shall mean the United States Securities Act of 1933, as amended. "SECURITY AGREEMENT" shall mean the Security Agreement, dated as of May 16, 1996, among the Company, RS and Sexton, as the same may be amended, supplemented or otherwise modified from time to time. "SELLERS" shall mean the collective reference to RS, in its capacity as a Seller under the Receivables Sale Agreement, the wholly-owned Subsidiaries of RS listed on Schedule 1 to the Receivables Sale Agreement (excluding any such Subsidiaries which have been terminated as Sellers in accordance with the provisions thereof and of the other Transaction Documents) and any wholly-owned Subsidiaries of RS which have been added as Sellers in accordance with the provisions of the Receivables Sale Agreement and the other Transaction Documents, all of the foregoing in their capacities as sellers under the Receivables Sale Agreement; each, individually, a "SELLER". "SELLER ADJUSTMENT PAYMENTS" shall have the meaning specified in Section 2.05 of the Receivables Sale Agreement. "SERIES" shall mean any series of Investor Certificates, the terms of which are set forth in a Supplement. 20 "SERIES ACCOUNT" shall mean any deposit, trust, escrow, reserve or similar account maintained for the benefit of the Investor Certificateholders of any Series or Class, as specified in any Supplement. "SERIES COLLECTION SUBACCOUNT" shall have the meaning specified in subsection 3.1(a). "SERIES COLLECTION SUB-SUBACCOUNT" shall have the meaning specified in subsection 3.1(a). "SERIES NON-PRINCIPAL COLLECTION SUB-SUBACCOUNT" shall have the meaning specified in subsection 3.1(a). "SERIES PRINCIPAL COLLECTION SUB-SUBACCOUNT" shall have the meaning specified in subsection 3.1(a). "SERIES TERMINATION DATE" shall mean, with respect to any Outstanding Series, the meaning assigned to such term in the related Supplement for such Series. "SERVICE TRANSFER" shall have the meaning specified in Section 6.1 of the Servicing Agreement. "SERVICER" shall initially mean RS in its capacity as Servicer under the Transaction Documents and, after any Service Transfer, the Successor Servicer. "SERVICER DEFAULT" shall have, with respect to any Series, the meaning specified in Section 6.1 of the Servicing Agreement and, if applicable, as supplemented by the related Supplement for such Series. "SERVICER INDEMNIFICATION AMOUNTS" shall have the meaning specified in Section 5.2(c) of the Servicing Agreement. "SERVICER SITE REVIEW" shall mean a review performed by the Trustee of the servicing operations of each Servicer and each Sub-Servicer at the offices of such Servicer or Sub-Servicer, as the case may be, as described in Appendix A. "SERVICING AGREEMENT" shall have the meaning specified in the recitals hereto. "SERVICING FEE" shall have the meaning specified in subsection 2.5(a) of the Servicing Agreement. "SERVICING FEE PERCENTAGE" shall mean 1% per annum. 21 "SERVICING PARTY" shall mean the collective reference to the Servicer, both in its capcity as the servicer of the Receivables originated by it and in its capacity as Servicer, and each Sub-Servicer. "SETTLEMENT PERIOD" shall mean (i) initially, the period commencing May 17, 1996 and ending at the end of the June 1996 fiscal month of the Servicer, and (ii) thereafter, each fiscal month of the Servicer. "SETTLEMENT REPORT DATE" shall mean, except as otherwise set forth in the applicable Supplement, the 15th day of each calendar month (or if such 15th day is not a Business Day, the next succeeding Business Day). "SPECIAL ALLOCATION SETTLEMENT REPORT DATE" shall have the meaning specified in subsection 3.1(e). "SPECIFIED BANKRUPTCY OPINION PROVISIONS" shall mean the factual assumptions and the actions to be taken by any Seller or the Company, in each case as specified in the legal opinion of Jones, Day, Reavis & Pogue relating to certain bankruptcy matters and delivered on the Initial Closing Date. "STANDBY LIQUIDATION SYSTEM" shall mean a system by which the Trustee will receive and store electronic information regarding Receivables from the Servicer and each Sub-Servicer which may be utilized in the event of a liquidation of the Receivables to be carried out by the Trustee, as described in Appendix B. "STATE/LOCAL GOVERNMENT OBLIGOR" shall have the meaning specified in the definition of "Eligible Obligor" hereunder. "SUBORDINATED CERTIFICATE AMOUNT" shall mean, with respect to any Outstanding Series, the meaning assigned to such term in the related Supplement for such Series. "SUBORDINATED COMPANY CERTIFICATE" shall mean any Certificate issued to the Company pursuant to the Supplement for any Series which represents an interest in the Trust Assets which is subordinated to the Investor Certificates of such Series. "SUBORDINATED NOTE" shall have the meaning specified in Section 8.01 of the Receivables Sale Agreement. "SUB-SERVICER" shall have the meaning specified in the recitals hereto. "SUBSIDIARY" shall mean, as to any Person, a corporation, partnership or other entity of which shares of stock or other ownership interests having ordinary voting power (other than stock or such other ownership interests having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such corporation, partnership or other entity are at the time owned, or the 22 management of which is otherwise controlled, directly or indirectly through one or more intermediaries, or both, by such Person. "SUCCESSOR SERVICER" shall have the meaning specified in Section 6.2 of the Servicing Agreement. "SUPPLEMENT" shall mean, with respect to any Series, a supplement to this Agreement complying with the terms of Section 5.10(c), executed in conjunction with the issuance of any Series. "TARGET RECEIVABLES AMOUNT" shall mean, with respect to any Outstanding Series, the meaning assigned to such term in the related Supplement for such Series. "TAX OPINION" shall mean, with respect to any action, an Opinion of Counsel (a) to the effect that, for federal income tax purposes, (i) such action will not adversely affect the characterization as debt or as an interest in a partnership (other than a partnership taxable as a corporation), as the case may be, of any Investor Certificates of any Outstanding Series or Class not retained by the Company and (ii) in the case of Section 5.9, the Investor Certificates of the new Series which are not retained by the Company will be characterized as debt or as an interest in a partnership (other than a partnership taxable as a corporation) and (b) with respect to state taxation issues, in substantially the form delivered on the Initial Closing Date. "TERMINATION NOTICE" shall have the meaning specified in Section 6.1 of the Servicing Agreement. "TRANSACTION DOCUMENTS" shall mean the collective reference to this Agreement, the Servicing Agreement, each Supplement with respect to any Outstanding Series, the Receivables Sale Agreement, the Lockbox Agreements, the Certificates and any other documents delivered pursuant to or in connection therewith. "TRANSFER AGENT AND REGISTRAR" shall have the meaning specified in Section 5.3 and shall initially be the Trustee. "TRANSFER DEPOSIT AMOUNT" shall have the meaning specified in subsection 2.5(b). "TRANSFERRED AGREEMENTS" shall have the meaning specified in subsection 2.1(b). "TRUST" shall mean the RS Receivables Master Trust created by this Agreement. "TRUST ACCOUNT" shall have the meaning, with respect to any Series, specified in the applicable Supplement for such Series. "TRUST ASSETS" shall have the meaning specified in Section 2.1. 23 "TRUST TERMINATION DATE" shall have the meaning specified in subsection 9.1(a). "TRUSTEE" shall mean the institution executing this Agreement as trustee, or its successor in interest, or any successor trustee appointed as herein provided. "UCC" shall mean the Uniform Commercial Code, as amended from time to time, as in effect in any specified jurisdiction or if no jurisdiction is specified, as in effect in the State of New York. I.2. OTHER DEFINITIONAL PROVISIONS. (a) All terms defined in this Agreement, the Servicing Agreement or in any Supplement shall have such defined meanings when used in any certificate or other document made or delivered pursuant hereto unless otherwise defined therein. (a) As used herein and in any certificate or other document made or delivered pursuant hereto or thereto, accounting terms not defined in Section 1.1, and accounting terms partly defined in Section 1.1 to the extent not defined, shall have the respective meanings given to them under GAAP. To the extent that the definitions of accounting terms herein are inconsistent with the meanings of such terms under GAAP, the definitions contained herein shall control. (b) The words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement; and Section, subsection, Schedule and Exhibit references contained in this Agreement are references to Sections, subsections, Schedules and Exhibits in or to this Agreement unless otherwise specified. (c) The definitions contained in Section 1.1 are applicable to the singular as well as the plural forms of such terms and to the masculine as well as to the feminine and neuter genders of such terms. (d) Where a definition contained in Section 1.1 specifies that such term shall have the meaning set forth in the related Supplement, the definition of such term set forth in the related Supplement may be preceded by a prefix indicating (or include in its definition) the specific Series or Class to which such definition shall apply. (e) Where reference is made in this Agreement or any related Supplement to the principal amount of Receivables, such reference shall, unless explicitly stated otherwise, be deemed a reference to the Principal Amount (as such term is defined in Section 1.1) of such Receivables. (f) Any reference herein or in any other Transaction Document to a provision of the Internal Revenue Code or ERISA shall be deemed a reference to any successor provision thereto. (g) To the extent that any provision of this Agreement or any other Transaction Document requires that a calculation be performed with respect to a date occurring prior to the 24 effective date of such Transaction Document, such calculation shall be performed as provided therein as though such Transaction Document had been effective on and as of such prior date. II CONVEYANCE OF RECEIVABLES; ISSUANCE OF CERTIFICATES II.1. CONVEYANCE OF RECEIVABLES. (a) By execution and delivery of this Agreement, the Company does hereby transfer, assign, set over and otherwise convey to the Trust for the benefit of the Certificateholders, without recourse (except as specifically provided herein), all of its present and future right, title and interest in, to and under: (i) all Receivables, including those existing at the close of business on the Initial Closing Date and all Receivables thereafter arising from time to time until but not including the Trust Termination Date; (ii) the Related Property; (iii) all Collections; (iv) all rights (including rescission, replevin or reclamation) relating to any Receivable or arising therefrom; (v) the Collection Account, each Lockbox and each Lockbox Account (collectively, the "ACCOUNTS"), including (A) all funds and other evidences of payment held therein and all certificates and instruments, if any, from time to time representing or evidencing any of such Accounts or any funds and other evidences of payment held therein, (B) all investments of such funds held in such Accounts and all certificates and instruments from time to time representing or evidencing such investments, (C) all notes, certificates of deposit and other instruments from time to time hereafter delivered or transferred to, or otherwise possessed by, the Trustee for and on behalf of the Company in substitution for any of the then existing Accounts and (D) all interest, dividends, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any and all of the then existing Accounts; and (vi) all monies due or to become due and all amounts received with respect to the items listed in clauses (i) through (v) and all proceeds (including, without limitation, whatever is received upon the sale, exchange, collection or other disposition of the foregoing and all "proceeds" as defined in Section 9-306 of the UCC as in effect in the State of New York) thereof, including all Recoveries relating thereto; 25 (b) The Company hereby transfers, assigns, sets over and otherwise conveys to the Trustee for the benefit of the Certificateholders and grants to the Trustee, for the benefit of the Certificateholders, a first priority perfected security interest in all its right, title and interest in, to and under the following: each of the Receivables Sale Agreement, the Servicing Agreement and the Security Agreement, including in respect of each agreement, (A) all property assigned thereunder and all rights of the Company to receive monies due and to become due under or pursuant to such agreement, whether payable as fees, expenses, costs or otherwise, (B) all rights of the Company to receive proceeds of any insurance, indemnity, warranty or guaranty with respect to such agreement, (C) claims of the Company for damages arising out of or for breach of or default under such agreement, (D) the right of the Company to amend, waive or terminate such agreement, to perform thereunder and to compel performance and otherwise exercise all remedies thereunder, (E) all other rights, remedies, powers, privileges and claims of the Company under or in connection with such agreement (whether arising pursuant to such agreement or otherwise available to the Company at law or in equity), including the rights of the Company to enforce such agreement and to give or withhold any and all consents, requests, notices, directions, approvals, extensions or waivers under or in connection therewith and (F) all monies due or to become due and all amounts received with respect to the items listed in clauses (A) through (F) and all proceeds (including, without limitation, whatever is received upon the sale, exchange, collection or other disposition of the foregoing and all "proceeds" as defined in Section 9-306 of the UCC as in effect in the State of New York) thereof, including all Recoveries relating thereto (all of the foregoing set forth in subclauses (A)-(F), inclusive, the "TRANSFERRED AGREEMENTS"); Such property described in the foregoing paragraphs (a) and (b), together with all investments and all monies on deposit in any other bank account or accounts maintained for the benefit of any Certificateholders for payment to Certificateholders shall constitute the assets of the Trust (the "TRUST ASSETS"). Subject to Section 5.9, although it is the intent of the parties to this Agreement that the conveyance of the Company's right, title and interest in, to and under the Receivables and the other Trust Assets described in paragraph (a) pursuant to this Agreement shall constitute a purchase and sale and not a loan, in the event that such conveyance is deemed to create a loan, the Company hereby grants to the Trustee, for the benefit of the Certificateholders, a perfected first priority security interest in all of the Company's present and future right, title and interest in, to and under the Receivables and such other Trust Assets to secure the payment of the applicable Invested Amounts, interest thereon and the other fees and expenses due to the Certificateholders, and that this Agreement shall constitute a security agreement under applicable law in favor of the Trustee, for the benefit of the Certificateholders. (c) The assignment, set over and conveyance to the Trust pursuant to Section 2.1(a) shall be made to the Trustee, on behalf of the Trust, and each reference in this Agreement to such assignment, set over and conveyance shall be construed accordingly. In connection with the foregoing assignment, except as expressly provided otherwise in the Transaction Documents, the Company, the Servicer and each Sub-Servicer agree to deliver to the Trustee each Trust Asset (including any original documents or instruments included in the Trust Assets as are necessary to 26 effect such assignment) in which the transfer of an interest is perfected under the UCC or otherwise solely by possession and not by filing a financing statement or similar document. Notwithstanding the assignment of the Transferred Agreements set forth in Section 2.1(b), the Company does not hereby assign or delegate any of its duties or obligations under the Receivables Sale Agreement to the Trust or the Trustee and neither the Trust nor the Trustee accepts such duties or obligations, and the Company shall continue to have the right and the obligation to purchase Receivables from the Sellers thereunder from time to time. The foregoing assignment, set-over and conveyance does not constitute and is not intended to result in a creation or an assumption by the Trust, the Trustee, any Investor Certificateholder or the Company, in its capacity as a Certificateholder, of any obligation of the Servicer, the Company, any Seller or any other Person in connection with the Receivables or under any agreement or instrument relating thereto, including, without limitation, any obligation to any Obligor. In connection with such assignment, the Company agrees to record and file, at its own expense, any financing statements (and continuation statements with respect to such financing statements when applicable) or, where applicable, registrations in the appropriate records, (i) with respect to the Receivables now existing and hereafter created and (ii) with respect to any other Trust Assets a security interest in which may be perfected under the relevant UCC, legislation or similar statute by such filing or registration, as the case may be, in each case meeting the requirements of applicable law in such manner and in such jurisdictions as are necessary to perfect and maintain perfection of the assignment of the Receivables and such other Trust Assets (excluding returned merchandise) to the Trust, and to deliver a file-stamped copy or certified statement of such financing statement or registration or other evidence of such filing or registration to the Trustee on or prior to the date of issuance of any Certificates. The Trustee shall be under no obligation whatsoever to file such financing statement, or a continuation statement to such financing statement, or to make any other filing or other registration under the UCC, other relevant legislation or similar statute in connection with such transfer. The Trustee shall be entitled to conclusively rely on the filings or registrations made by or on behalf of the Company without any independent investigation and the Company's obligation to make such filings as evidence that such filings have been made. In connection with such assignment, the Company further agrees, at its own expense, on or prior to the Initial Closing Date (a) to indicate, or to cause to be indicated, in its computer files containing its master database of Receivables and to cause each Seller to indicate in its records containing its master database of Receivables that Receivables have been conveyed to the Company or the Trust, as the case may be, pursuant to the Receivables Sale Agreement or this Agreement, respectively, for the benefit of the Certificateholders and (b) to deliver, or cause to be delivered, to the Trustee computer tapes or disks containing a true and complete list of all Receivables transferred to the Trust specifying for each such Receivable, as of the Cut-Off Date, (i) the identification or reference number assigned to such Receivables by the Company and (ii) the Principal Amount of such Receivables. Such tapes or disks shall be marked as Schedule 1 to this Agreement and are hereby incorporated into and made a part of this Agreement. 27 II.2. ACCEPTANCE BY TRUSTEE. (a) The Trustee hereby acknowledges its acceptance on behalf of the Trust of all right, title and interest to the property, now existing and hereafter created, assigned to the Trust pursuant to Section 2.1 and declares that it shall maintain such right, title and interest, upon the trust herein set forth, for the benefit of all Certificateholders. (a) The Trustee shall have no power to create, assume or incur indebtedness or other liabilities in the name of the Trust other than as contemplated in this Agreement. II.3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY RELATING TO THE COMPANY. The Company hereby represents and warrants to the Trustee and the Trust, for the benefit of the holders of Certificates of each Outstanding Series, as of the Issuance Date of such Series, that: (a) CORPORATE EXISTENCE; COMPLIANCE WITH LAW. The Company (i) is a corporation duly incorporated, validly existing and in good standing under the laws of the jurisdiction of its organization, (ii) has all requisite corporate power and authority and all legal right to own and operate its properties, to lease the properties it operates as lessee and to conduct its business as now conducted, (iii) is duly qualified as a foreign corporation to do business and in good standing under the laws of each jurisdiction where such qualification is necessary and (iv) is in compliance with all Requirements of Law. The Company does not engage in activities prohibited by the Transaction Documents or its certificate of incorporation. (b) CORPORATE POWER; AUTHORIZATION. The Company has the corporate power and authority, and the legal right, to execute, deliver and perform this Agreement and the other Transaction Documents to which it is a party and has taken all necessary corporate action to authorize the execution, delivery and performance of this Agreement and the other Transaction Documents to which it is a party. No consent or authorization of, filing with, notice to or other act by or in respect of, any Governmental Authority or any other Person is required in connection with the execution, delivery, performance, validity or enforceability of this Agreement and the other Transaction Documents to which it is a party by or against the Company other than (i) those which have duly been obtained or made and are in full force and effect on the Initial Closing Date, (ii) any filings of UCC-1 financing statements or similar documents necessary to perfect the Company's or the Trust's interest in the Trust Assets and (iii) those that may be required under the state securities or "blue sky" laws in connection with the offering or sale of certificates. This Agreement and each other Transaction Document to which the Company is a party have been duly executed and delivered on behalf of the Company. (c) ENFORCEABILITY. This Agreement and each of the other Transaction Documents to which the Company is a party (i) constitute the legal, valid and binding obligations of the Company enforceable against it in accordance with their terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect affecting the enforcement of creditors' rights generally and except as such enforceability may be limited by general 28 principles of equity (whether considered in a proceeding at law or in equity) and (ii) are effective and all action has been taken to cause compliance with paragraph (n) of the definition of Eligible Receivables. (d) NO LEGAL BAR. The execution, delivery and performance of this Agreement and the other Transaction Documents to which the Company is a party will not violate any Requirement of Law, and will not result in, or require, the creation or imposition of any Lien (other than Liens contemplated or permitted hereby) on any of its properties or revenues pursuant to any such Requirement of Law or Contractual Obligation. (e) NO MATERIAL LITIGATION. There are no actions, suits, investigations or proceedings at law or in equity (including, without limitation, injunctions, writs or restraining orders) by or before any arbitrator, court or Governmental Authority now pending or, to the knowledge of the Company, threatened against or affecting the Company or any properties, revenues or rights of the Company which (i) involve this Agreement or any of the other Transaction Documents or any of the transactions contemplated hereby or thereby, or (ii) would be reasonably likely to have a Material Adverse Effect with respect to the Company. The transactions contemplated hereunder and the use of the proceeds thereof will not violate any Requirement of Law. (f) NO DEFAULT. The Company is not in default under or with respect to any of its Contractual Obligations. No Early Amortization Event or Potential Early Amortization Event has occurred and is continuing. (g) TAX RETURNS. The Company has filed or caused to be filed all tax returns which are required to have been filed by it and has paid or caused to be paid all taxes shown thereon to be due and payable, and any assessments made against it or any of its property. No tax Lien has been filed, and, to the best knowledge of the Company, no claim is being asserted, with respect to any taxes. For purposes of this paragraph, "taxes" shall mean any present or future tax, levy, impost, duty, charge, assessment or fee of any nature (including interest, penalties and additions thereto) that is imposed by any Governmental Authority. (h) LOCATION OF RECORDS; CHIEF EXECUTIVE OFFICE. The offices at which the Company keeps its records concerning the Receivables either (x) are located at the addresses set forth for the Sellers on Schedule II of the Receivables Sale Agreement or (y) have been reported to the Trustee in accordance with the provisions of subsection 2.8(l) of this Agreement. The chief executive office of the Company is located at one of the addresses set forth on Schedule 4 and is the place where the Company is "located" for the purposes of Section 9-103(3)(d) of the UCC as in effect in the State of New York. The state and county where the chief executive office of the Company is "located" for the purposes of Section 9-103(3)(d) of the UCC as in effect in the State of New York has not changed in the past four months. 29 (i) SOLVENCY. Both prior to and after giving effect to the transactions occurring on each Issuance Date, (i) the fair value of the assets of the Company at a fair valuation will exceed the debts and liabilities, subordinated, contingent or otherwise, of the Company; (ii) the present fair salable value of the property of the Company will be greater than the amount that will be required to pay the probable liability of the Company on its debts and other liabilities, subordinated, contingent or otherwise, as such debts and liabilities become absolute and matured; (iii) the Company will be able to pay its debts and liabilities, subordinated, contingent or otherwise, as such debts and liabilities become absolute and matured; and (iv) the Company will not have unreasonably small capital with which to conduct the business in which it is engaged as such business is now conducted and is proposed to be conducted. For all purposes of clauses (i) through (iv) above, the amount of contingent liabilities at any time shall be computed as the amount that, in the light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability. The Company does not intend to, nor does it believe that it will, incur debts beyond its ability to pay such debts as they mature, taking into account the timing of and amounts of cash to be received by it and the timing of and amounts of cash to be payable in respect of its Indebtedness. (j) INVESTMENT COMPANY. Neither the Company nor the Trust is an "investment company" within the meaning of the Investment Company Act of 1940, as amended, or is exempt from all provisions of such act. (k) OWNERSHIP; SUBSIDIARIES. All of the issued and outstanding capital stock of the Company is owned, legally and beneficially, by RS. The Company has no Subsidiaries. (l) NAMES. The legal name of the Company is as set forth in this Agreement. The Company has not had, nor has, any trade names, fictitious names, assumed names or "doing business as" names. (m) LIABILITIES. Other than, (i) the liabilities, commitments or obligations (whether absolute, accrued, contingent or otherwise) arising under or in respect of the Transaction Documents and (ii) immaterial amounts due and payable in the ordinary course of business of a special- purpose company, the Company does not have any liabilities, commitments or obligations (whether absolute, accrued, contingent or otherwise), whether due or to become due. (n) USE OF PROCEEDS; FEDERAL RESERVE BOARD REGULATION. No proceeds of the issuance of any Investor Certificates will be used by the Company to purchase or carry any margin stock (as defined in Regulation U of the Board of Governors of the Federal Reserve System, as in effect from time to time). The Company is in compliance with all applicable regulations of the Board of Governors of the Federal Reserve System (including, without limitation, Regulations U and G with respect to "margin stock"). 30 (o) COLLECTION PROCEDURES. The Company and each Seller have in place procedures pursuant to the Transaction Documents which are either necessary or advisable to ensure the timely collection of Receivables. (p) LOCKBOX AGREEMENTS; LOCKBOX ACCOUNTS. Except to the extent otherwise permitted under the terms of this Agreement, (i) each Lockbox Agreement to which the Company is party is in full force and effect and (ii) each Lockbox Account set forth in Schedule III to the Receivables Sales Agreement is free and clear of any Lien (other than any right of set- off expressly provided for in the applicable Lockbox Agreement). (q) NO CONFLICT. The execution and delivery of this Agreement and the Receivables Sale Agreement, the performance of the transactions contemplated hereby and thereby and the fulfillment of the terms hereof and thereof will not conflict with, result in any breach of any of the material terms and provisions of, or constitute (with or without notice or lapse of time or both) a default under, any indenture, contract, agreement, mortgage, deed of trust, or other instrument to which the Company is a party or by which it or any of its property is bound. (r) ALL CONSENTS REQUIRED. All appraisals, authorizations, consents, orders or other similar actions of any Person or of any governmental body or official required in connection with the execution and delivery of this Agreement, the Receivables Sale Agreement and the Certificates, the performance of the transactions contemplated hereby and thereby, and the fulfillment of or terms hereof and thereof, have been obtained. (s) BULK SALES. The execution, delivery and performance of this Agreement do not require compliance with any "bulk sales" law by the Company. The representations and warranties set forth in this Section 2.3 shall survive after the date made and the transfer and assignment of the Trust Assets to the Trust. Upon discovery by a Responsible Officer of the Company or the Servicer or by a Responsible Officer of the Trustee of a breach of any of the foregoing representations and warranties with respect to any Outstanding Series as of the Issuance Date of such Series, the party discovering such breach shall give prompt written notice to the other parties and to each Agent with respect to all Outstanding Series. The Trustee's obligations in respect of any breach are limited as provided in subsection 8.2(g). II.4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY RELATING TO THE RECEIVABLES. The Company hereby represents and warrants to the Trustee and the Trust, for the benefit of the holders of Certificates of each Outstanding Series, (x) as of the Issuance Date of such Series, and (y) with respect to each Receivable transferred to the Trust after such Issuance Date, as of the related Receivables Purchase Date, unless, in either case, otherwise stated in the applicable Supplement or unless such representation or warranty expressly relates only to a prior date, that: (a) Schedule 1 to this Agreement sets forth in all material respects an accurate and complete listing as of the Cut-Off Date of all Receivables to be transferred to the Trust as 31 of the Initial Closing Date and the information contained therein with respect to the identity and Principal Amount of each such Receivable is true and correct in all material respects as of the Cut-Off Date. As of the Cut-Off Date, the aggregate amount of Receivables owned by the Company is accurately set forth in Schedule 1 hereto. (b) Each Receivable existing on the Initial Closing Date or, in the case of Receivables transferred to the Trust after the Initial Closing Date, on the date that each such Receivable shall have been transferred to the Trust, has been conveyed to the Trust free and clear of any Lien, except for Permitted Liens specified in clauses (i) and (v) of the definition thereof. (c) On the Initial Closing Date, each Receivable transferred to the Trust that is included in the calculation of the initial Aggregate Receivables Amount is an Eligible Receivable and, in the case of Receivables transferred to the Trust after the Initial Closing Date, on the date such Receivable shall have been transferred to the Trust, each such Receivable that is included in the calculation of the Aggregate Receivables Amount on such date is an Eligible Receivable. Each Receivable classified as an "Eligible Receivable" by the Company in any document or report delivered hereunder satisfies the requirements of eligibility contained in the definition of Eligible Receivable. The representations and warranties set forth in this Section 2.4 shall survive after the date made and the transfer and assignment of the Trust Assets to the Trust. Upon discovery by a Responsible Officer of the Company or the Servicer or a Responsible Officer of the Trustee of a breach of any of the representations and warranties with respect to each Outstanding Series as of the Issuance Date of such Series, the party discovering such breach shall give prompt written notice to the other parties and to each Agent with respect to all Outstanding Series. The Trustee's obligations in respect of any breach are limited as provided in Section 8.2(g). II.5. REPURCHASE OF INELIGIBLE RECEIVABLES. (a) REPURCHASE OBLIGATION. If (i) any representation or warranty under subsections 2.4(a), (b) or (c) is not true and correct in any material respect as of the date specified therein with respect to any Receivable transferred to the Trust, (ii) there is a breach of any covenant under subsection 2.8(c) with respect to any Receivable and such breach has a material adverse effect on the Certificateholders' Interest in such Receivable or (iii) the Trust's interest in any Receivable is not a first priority perfected ownership or security interest at any time as a result of any action taken by, or any failure to take action by, the Company (any Receivable as to which the conditions specified in any of clauses (i), (ii) or (iii) of this subsection 2.5(a) exists is referred to herein as an "INELIGIBLE RECEIVABLE") then, upon the earlier (the date on which such earlier event occurs, the "REPURCHASE OBLIGATION DATE"), of the discovery by the Company of any such event which continues unremedied or receipt by the Company of written notice given by the Trustee or the Servicer of any such event which continues unremedied, the Company shall become obligated to repurchase or cause to be repurchased such Ineligible Receivable on the terms and conditions set forth in subsection 2.5(b). (a) REPURCHASE OF RECEIVABLES. Subject to the last sentence of this subsection 2.5(b), the Company shall repurchase, or cause to be repurchased, each Ineligible Receivable 32 required to be repurchased pursuant to subsection 2.5(a) by depositing in the Collection Account in immediately available funds on the Business Day following the related Repurchase Obligation Date an amount equal to the lesser of (x) the amount by which the Aggregate Target Receivables Amount exceeds the Aggregate Receivables Amount (after giving effect to the reduction thereof by the Principal Amount of such Ineligible Receivable) and (y) the aggregate outstanding Principal Amount of each such Ineligible Receivable (the "TRANSFER DEPOSIT AMOUNT"). Upon transfer or deposit of the Transfer Deposit Amount, the Trust shall automatically and without further action be deemed to sell, transfer, assign, set over and otherwise convey to the Company, without recourse, representation or warranty, all the right, title and interest of the Trust in and to such Ineligible Receivable, all monies due or to become due with respect thereto and all proceeds thereof; and such repurchased Ineligible Receivable shall be treated by the Trust as collected in full as of the date on which it was transferred. The Trustee shall execute such documents and instruments of transfer or assignment and take such other actions as shall reasonably be requested by the Company to effect the conveyance of such Receivables pursuant to this subsection. Except as otherwise specified in any Supplement, the obligation of the Company to repurchase any Ineligible Receivable shall constitute the sole remedy respecting the event giving rise to such obligation available to Investor Certificateholders (or the Trustee on behalf of Investor Certificateholders). II.6. PURCHASE OF INVESTOR CERTIFICATEHOLDERS' INTEREST IN TRUST PORTFOLIO. (a) In the event of any breach of any of the representations and warranties set forth in paragraphs (a), (b), (c), (d), (e)(i) or (q) of Section 2.3 as of the date made, which breach has a material adverse effect on the interests of the holders of an Outstanding Series (without giving effect to any Enhancement) under or with respect to the Transaction Documents, then the Trustee, at the written direction of holders evidencing more than 50% of the Invested Amount of such Outstanding Series, subject to Section 8.2 hereof, shall notify the Company to purchase such Outstanding Series and the Company shall be obligated to make such purchase on the next Distribution Date occurring at least five Business Days after receipt of such notice on the terms and conditions set forth in subsection 2.6(b) below; PROVIDED, HOWEVER, that no such purchase shall be required to be made if, by such Distribution Date, the representations and warranties contained in Section 2.3 shall be satisfied in all material respects and any material adverse effect on the holders of such Outstanding Series caused thereby shall have been cured. (b) As required under subsection 2.6(a) above, the Company shall deposit into the Collection Account for credit to the applicable subaccount of the Collection Account on the Business Day preceding such Distribution Date an amount equal to the purchase price (as described in the next succeeding sentence) for the Certificateholders' Interest for such Outstanding Series on such day. The purchase price for any such purchase will be equal to (i) the Adjusted Invested Amount of such Outstanding Series on the date on which the purchase is made plus (ii) an amount equal to all interest accrued but unpaid on such Series up to the Distribution Date on which the distribution of such deposit is scheduled to be made pursuant to Section 9.2 plus (iii) any other amount required to be paid in connection therewith pursuant to any Supplement. Notwithstanding anything to the contrary in this Agreement, the entire amount of the purchase price deposited in the Collection Account shall be distributed to the related Investor Certificateholders on such Distribution Date pursuant to Section 9.2. If the Trustee gives notice 33 directing the Company to purchase the Certificates of an Outstanding Series as provided above, except as otherwise specified in any Supplement, the obligation of the Company to purchase such Certificates pursuant to this Section 2.6 shall constitute the sole remedy respecting an event of the type specified in the first sentence of this Section 2.6 available to the applicable Investor Certificateholders (or the Trustee on behalf of such Investor Certificateholders). II.7. AFFIRMATIVE COVENANTS OF THE COMPANY. The Company hereby covenants that, until the Trust Termination Date occurs, the Company shall: (a) FINANCIAL STATEMENTS. Furnish to the Trustee, each Agent and the Rating Agencies, as soon as available, but in any event within 95 days after the end of each fiscal year of the Company, a copy of the audited balance sheet and statement of operations of the Company as at the end of such year, all in reasonable detail and certified by an appropriate Responsible Officer as correct and fairly presenting the financial position and results of operations of the Company. (b) ANNUAL OPINION. Deliver to the Trustee an Opinion of Counsel, substantially in the form of Exhibit C, by July 31st of each year, the first such delivery hereunder to occur in July 1997. (c) PAYMENT OF OBLIGATIONS; COMPLIANCE WITH OBLIGATIONS. Pay, discharge or otherwise satisfy at or before maturity or before they become delinquent, as the case may be, all its obligations of whatever nature (including, without limitation, all taxes, assessments, levies and other governmental charges imposed on it), except where the amount or validity thereof is currently being contested in good faith by appropriate proceedings and reserves in conformity with GAAP with respect thereto have been provided on the books of the Company. The Company shall defend the right, title and interest of the Certificateholders in, to and under the Receivables and the other Trust Assets, whether now existing or hereafter created, against all claims of third parties claiming through or under the Company, any Seller, any Sub-Servicer or the Servicer. The Company will duly fulfill all material obligations on its part to be fulfilled under or in connection with each Receivable and will do nothing to impair the rights of the Certificateholders in such Receivable. (d) INSPECTION OF PROPERTY; BOOKS AND RECORDS; DISCUSSIONS. Keep proper books of records and accounts in which full, true and correct entries in conformity in all material respects with GAAP and all Requirements of Law shall be made of all dealings and transactions in relation to its business and activities; and permit representatives of the Trustee upon reasonable advance notice to visit and inspect any of its properties and examine and make abstracts from any of its books and records during normal business hours on any Business Day and as often as may reasonably be desired according to the Company's normal security and confidentiality requirements and to discuss the business, operations, properties and financial and other condition of the Company with officers and employees of the Company and with its Independent Public Accountants; PROVIDED, that the Trustee shall notify the Company prior to any contact with such Independent Public 34 Accountants and shall give the Company the opportunity to participate in such discussions. (e) COMPLIANCE WITH LAW AND POLICIES. (i) Comply in all material respects with all Requirements of Law applicable to the Company. (ii) Cause each Seller to perform its obligations in accordance with, and comply in all material respects with, the Policies, as amended from time to time in accordance with the Transaction Documents, in regard to the Receivables and the Related Property. (f) PURCHASE OF RECEIVABLES. Purchase Receivables solely pursuant to the Receivables Sale Agreement or this Agreement. (g) DELIVERY OF COLLECTIONS. In the event that the Company receives Collections directly from Obligors, deposit such Collections into a Lockbox Account or the Collection Account within one Business Day after receipt thereof by the Company. (h) NOTICES. Promptly (and, in any event, within five Business Days after a Responsible Officer of the Company becomes aware of such event) give written notice to the Trustee, each Rating Agency and each Agent for any Outstanding Series of: (i) the occurrence of any Early Amortization Event or Potential Early Amortization Event; and (ii) any Lien not permitted by subsection 2.8(c) on any Receivable or any other Trust Assets. (i) LOCKBOXES. (i) Maintain, and keep in full force and effect, each Lockbox Agreement to which the Company is a party, except to the extent otherwise permitted under the terms of this Agreement and the other Transaction Documents and (ii) ensure that each related Lockbox Account shall be free and clear of, and defend each such Lockbox Account against, any writ, order, stay, judgment, warrant of attachment or execution or similar process. (j) SEPARATE CORPORATE EXISTENCE. (i) Maintain its own deposit account or accounts, separate from those of any Affiliate, with commercial banking institutions and ensure that the funds of the Company will not be diverted to any other Person or for other than corporate uses of the Company, nor will such funds be commingled with the funds of any Seller or any other Subsidiary or Affiliate of any Seller; (ii) To the extent that it shares the same officers or other employees as any of its stockholders or Affiliates, the salaries of and the expenses 35 related to providing benefits to such officers and other employees shall be fairly allocated among such entities, and each such entity shall bear its fair share of the salary and benefit costs associated with all such common officers and employees; (iii) To the extent that it jointly contracts with any of its stockholders or Affiliates to do business with vendors or service providers or to share overhead expenses, the costs incurred in so doing shall be allocated fairly among such entities, and each such entity shall bear its fair share of such costs. To the extent that the Company contracts or does business with vendors or service providers where the goods and services provided are partially for the benefit of any other Person, the costs incurred in so doing shall be fairly allocated to or among such entities for whose benefit the goods or services are provided, and each such entity shall bear its fair share of such costs. All material transactions between the Company and any of its Affiliates, whether currently existing or hereafter entered into, shall be only on an arm's-length basis, it being understood and agreed that the transactions contemplated in the Transaction Documents meet the requirements of this clause (iii); (iv) Maintain a principal executive office at a separate address from the address of RS and its Affiliates; PROVIDED that segregated offices in the same building shall constitute separate addresses for purposes of this clause (iv). To the extent that the Company and any of its stockholders or Affiliates have offices in the same location, there shall be a fair and appropriate allocation of overhead costs among them, and each such entity shall bear its fair share of such expenses; (v) Issue separate financial statements prepared not less frequently than quarterly and prepared in accordance with GAAP; (vi) Conduct its affairs in its own name and strictly in accordance with its articles of incorporation and observe all necessary, appropriate and customary corporate formalities, including, but not limited to, holding all regular and special stockholders' and directors' meetings appropriate to authorize all corporate action, keeping separate and accurate minutes of its meetings, passing all resolutions or consents necessary to authorize actions taken or to be taken, and maintaining accurate and separate books, records and accounts, including, but not limited to, payroll and intercompany transaction accounts; (vii) Not assume or guarantee any of the liabilities of any Seller, any Servicing Party or any Affiliate of any thereof; and (viii) Take, or refrain from taking, as the case may be, all other actions that are necessary to be taken or not to be taken in order to (x) ensure that the assumptions and factual recitations set forth in the Specified Bankruptcy Opinion Provisions remain true and correct in all material respects with respect to 36 the Company and (y) comply with those procedures described in such provisions which are applicable to the Company. (k) PRESERVATION OF CORPORATE EXISTENCE. (i) Preserve and maintain its corporate existence, rights, franchises and privileges in the jurisdiction of its incorporation and (ii) qualify and remain qualified in good standing as a foreign corporation in each jurisdiction where the failure to preserve and maintain such existence, rights, franchises, privileges and qualification would, if not remedied within 30 days, be reasonably likely to have a Material Adverse Effect with respect to the Company. (l) NET WORTH. Maintain at all times a consolidated net worth, as determined in accordance with GAAP, of at least $15,000,000. (m) OPTIONAL TERMINATION. If the Company shall deliver an Optional Termination Notice to the Trustee with respect to any Outstanding Series, the Company shall deliver an Optional Termination Notice to the Trustee with respect to all Outstanding Series. (n) MAINTENANCE OF PROPERTY. Keep all material tangible property useful and necessary in its business in good working order and condition (normal wear and tear excepted), except to the extent that the failure to do any of the foregoing with respect to any such property would not be reasonably likely to have a Material Adverse Effect with respect to the Company. II.8. NEGATIVE COVENANTS OF THE COMPANY. The Company hereby covenants that, until the Trust Termination Date occurs, it shall not directly or indirectly: (a) ACCOUNTING OF TRANSFERS. Prepare any financial statements which shall account for the transactions contemplated hereby in any manner other than as a sale of Receivables and the other Trust Assets by the Company to the Trust or in any other respect account for or treat the transactions under this Agreement (including for financial accounting purposes, except as required by law) in any manner other than as transfers of Receivables and the other Trust Assets by the Company to the Trust; PROVIDED, HOWEVER, that this subsection shall not apply for any tax or tax accounting purposes. (b) LIMITATION ON INDEBTEDNESS. Create, incur, assume or suffer to exist any Indebtedness, except: (i) Indebtedness evidenced by the Subordinated Note; (ii) Indebtedness representing fees, expenses and indemnities payable pursuant to and in accordance with the Transaction Documents; and (iii) Indebtedness for services supplied or furnished to the Company in an amount not to exceed $10,000 at any one time outstanding; PROVIDED that any Indebtedness permitted hereunder and described in clauses (i) and (iii) shall be payable by the Company solely from funds available to the Company which are not otherwise needed to be applied to the payment of any amounts by the Company pursuant to any Pooling and Servicing Agreements and shall be non-recourse other than with respect to proceeds in excess of the proceeds needed to be so applied. 37 (c) LIMITATION ON LIENS. Create, incur, assume or suffer to exist any Lien upon any of its property, assets or revenues, whether now owned or hereafter acquired, except for Permitted Liens, it being understood that no Permitted Lien under clause (ii) of the definition thereof shall cover any of the Trust Assets (except to the limited extent permitted by clause (v) of such definition). (d) LIMITATION ON GUARANTEE OBLIGATIONS. Become or remain liable, directly or contingently, in connection with any Indebtedness or other liability of any other Person, whether by guarantee, endorsement (other than endorsements of negotiable instruments for deposit or collection in the ordinary course of business), agreement to purchase or repurchase, agreement to supply or advance funds, or otherwise, except in connection with indemnification obligations of the Company to the limited extent provided in the Company's certificate of incorporation and by-laws; PROVIDED that any such indemnification shall be paid solely from funds available to the Company which are not otherwise needed to be applied to the payment of any amounts pursuant to any Pooling and Servicing Agreements, shall be non-recourse other than with respect to proceeds in excess of the proceeds necessary to make such payment, and shall not constitute a claim against the Company to the extent that insufficient proceeds exist to make such payment. (e) LIMITATION ON FUNDAMENTAL CHANGES. Enter into any merger, consolidation or amalgamation, or liquidate, wind up or dissolve itself (or suffer any liquidation or dissolution), or make any material change in its present method of conducting business, or convey, sell, lease, assign, transfer or otherwise dispose of, all or substantially all of its property, business or assets other than the assignments and transfers contemplated hereby. (f) LIMITATION ON DIVIDENDS AND OTHER PAYMENTS. Declare or pay any dividend on, or make any payment on account of, or set apart assets for a sinking or other analogous fund for, the purchase, redemption, defeasance, retirement or other acquisition of, any shares of any class of capital stock of the Company, whether now or hereafter outstanding, or make any other distribution in respect thereof, either directly or indirectly, whether in cash or property or in obligations of the Company (any of the foregoing, a "restricted payment"), unless (i) at the date such restricted payment is made, the Company shall have made all payments in respect of its repurchase obligations pursuant to this Agreement outstanding at such date and (ii) such restricted payment is made no more frequently than on a monthly basis and is effected in accordance with all corporate and legal formalities applicable to the Company; PROVIDED, HOWEVER, that (A) no restricted payment shall be made on any date if (x) a Potential Early Amortization Event of a type referred to in clause (a)(ii) or (iii) of Section 7.1 or (y) an Early Amortization Event has occurred and is continuing (or would occur as a result of such payment) on such date and (B) all restricted payments made on any date shall be payable by the Company solely from funds available to the Company which are not otherwise needed on such date to be applied to the payment of any amounts by the Company pursuant to any Pooling and Servicing Agreement. 38 (g) BUSINESS OF THE COMPANY. Engage at any time in any business or business activity other than the acquisition of Receivables pursuant to the Receivables Sale Agreement, the assignments and transfers hereunder and the other transactions contemplated by the Transaction Documents, and any activity incidental to the foregoing and necessary or convenient to accomplish the foregoing, or enter into or be a party to any agreement or instrument other than in connection with the foregoing, except those agreements or instruments permitted under subsection 2.8(i) or set forth on Schedule 5. (h) LIMITATION ON INVESTMENTS, LOANS AND ADVANCES. Make any advance, loan, extension of credit or capital contribution to, or purchase any stock, bonds, notes, debentures or other securities of or any assets constituting a business unit of, or make any other investment in, any Person, except for (i) any Exchangeable Company Certificate, any Subordinated Company Certificate, the Receivables and the other Trust Assets, (ii) the Subordinated Note and (iii) any other advance or loan made to any Seller, PROVIDED, HOWEVER, that in the case of the preceding clause (iii), (A) no (x) Potential Early Amortization Event of a type referred to in clause (a)(ii) or (iii) of Section 7.1 or (y) Early Amortization Event has occurred and is continuing at the time any such investment is made (or would occur as a result of such investment), (B) no amounts are outstanding under the Subordinated Note, (C) the loan made is a demand loan at a market rate of interest and (D) any such investment shall be made by the Company solely from funds available to the Company which are not otherwise needed to be applied to the payment of any amounts by the Company pursuant to any Pooling and Servicing Agreement. (i) AGREEMENTS. (i) Become a party to, or permit any of its properties to be bound by, any indenture, mortgage, instrument, contract, agreement, lease or other undertaking, except the Transaction Documents, leases of office space, equipment or other facilities for use by the Company in its ordinary course of business, employment agreements, service agreements, agreements relating to shared employees and the other Transaction Documents and agreements necessary to perform its obligations under the Transaction Documents, (ii) issue any power of attorney (except to the Trustee or the Servicer or except for the purpose of permitting any Person to perform any ministerial functions on behalf of the Company that are not prohibited by or inconsistent with the terms of the Transaction Documents), or (iii) amend, supplement, modify or waive any of the provisions of the Receivables Sale Agreement or any Lockbox Agreement or request, consent or agree to or suffer to exist or permit any such amendment, supplement, modification or waiver or exercise any consent rights granted to it thereunder unless such amendment, supplement, modification or waiver or such exercise of consent rights would not be reasonably likely to have a Material Adverse Effect and, in the case of the Receivables Sale Agreement, the Rating Agency Condition shall have been satisfied with respect to any such amendments, supplements, modifications or waivers. (j) POLICIES. Make any change or modification (or permit any change or modification to be made) in any material respect to the Policies, except (i) if such changes or modifications are necessary under any Requirement of Law, (ii) if such changes or modifications would not reasonably be likely to have a Material Adverse Effect 39 with respect to the Company or (iii) if the Rating Agency Condition is satisfied with respect thereto; PROVIDED, HOWEVER, that if any change or modification, other than a change or modification permitted pursuant to clause (i) or (ii) above, would be reasonably likely to have a Material Adverse Effect on the interests of the Investor Certificateholders of a Series which is not rated by a Rating Agency, the consent of the applicable Agent (or as specified in the related Supplement) shall be required to effect such change or modification. (k) RECEIVABLES NOT TO BE EVIDENCED BY PROMISSORY NOTES. Subject to the delivery requirement set forth in subsection 2.1(b), take any action to cause any Receivable to be evidenced by any "instrument" other than, provided that the procedures set forth in Schedule 3 are fully implemented with respect thereto, an instrument which alone or together with a security agreement consitutes "chattel paper" (each as defined in the UCC as in effect in any state in which the Company's or the applicable Seller's chief executive office or books and records relating to such Receivable are located), except in connection with its enforcement or collection of a Defaulted Receivable. (l) OFFICES. Move outside the state where such office is now located the location of its chief executive office or of any of the offices where it keeps its records with respect to the Receivables without (i) giving 30 days' prior written notice to the Trustee and each Rating Agency, (ii) taking all actions reasonably requested by the Trustee (including but not limited to all filings and other acts necessary or advisable under the UCC or similar statute of each relevant jurisdiction) in order to continue the Trust's first priority perfected ownership or security interest in all Receivables now owned or hereafter created and (iii) giving the Trustee prompt notice of a change within the state where such office is now located of the location of its chief executive office or any office where it keeps its records with respect to the Receivables; PROVIDED, HOWEVER, that the Company shall not change the location of its chief executive office to outside of the United States, or to a state which is within the Tenth Circuit unless it delivers an opinion of counsel reasonably acceptable to the Rating Agencies to the effect that OCTAGON GAS SYSTEMS, INC. V. RIMMER, 995 F.2d 948 (10th Cir. 1993) is no longer controlling precedent in the Tenth Circuit. (m) CHANGE IN NAME. Change its name, identity or corporate structure in any manner which would or might make any financing statement or continuation statement (or other similar instrument) filed in accordance with subsection 10.2(a) seriously misleading within the meaning of Section 9-402(7) of the UCC as in effect in any applicable jurisdiction in which UCC filings have been made in respect of the Trust Assets without 30 days' prior written notice to the Trustee and each Rating Agency. (n) CHARTER. Amend or make any change or modification to its certificate of incorporation or by-laws without first satisfying the Rating Agency Condition (other than an amendment, change or modification made pursuant to changes in law of the state of its incorporation or amendments to change the Company's name (subject to compliance with clause (m) above), resident agent or address of resident agent). 40 (o) ADDITION OF SELLERS. Agree to the addition of any Subsidiary as an additional Seller pursuant to Section 9.13 of the Receivables Sale Agreement without such Subsidiary's being simultaneously added as a Sub- Servicer (or without another Subsidiary's simultaneously agreeing to act as a Sub-Servicer in respect of such additional Seller) under the Transaction Documents pursuant to Section 2.6 of the Servicing Agreement. III RIGHTS OF CERTIFICATEHOLDERS AND ALLOCATION AND APPLICATION OF COLLECTIONS THE FOLLOWING PORTION OF THIS ARTICLE III IS APPLICABLE TO ALL SERIES. III.1. ESTABLISHMENT OF COLLECTION ACCOUNT; CERTAIN ALLOCATIONS. (a) The Trustee, for the benefit of the Certificateholders as their interests appear in this Agreement, shall cause to be established and maintained in the name of the Trust with an Eligible Institution or with the corporate trust department of the Trustee or an affiliate of the Trustee, a segregated trust account (the "COLLECTION ACCOUNT"), bearing a designation clearly indicating that the funds deposited therein are held for the benefit of the Certificateholders. Schedule 2, which is hereby incorporated into and made a part of this Agreement, identifies the Collection Account by setting forth the account number of such account, the account designation of such account and the name of the institution with which such account has been established. The Collection Account shall be divided into individual subaccounts for each Outstanding Series (each, respectively, a "SERIES COLLECTION SUBACCOUNT" and, collectively, the "SERIES COLLECTION SUBACCOUNTS") and for the Company (the "COMPANY COLLECTION SUBACCOUNT"). For administrative purposes only, the Trustee shall establish or cause to be established for each Series, so long as such Series is an Outstanding Series, sub-subaccounts of the Series Collection Subaccounts with respect to such Series (respectively, the "SERIES PRINCIPAL COLLECTION SUB- SUBACCOUNT" and "SERIES NON-PRINCIPAL COLLECTION SUB-SUBACCOUNT" and, collectively, the "SERIES COLLECTION SUB-SUBACCOUNTS"). 41 (a) AUTHORITY OF THE TRUSTEE IN RESPECT OF THE COLLECTION ACCOUNT AND CERTIFICATEHOLDERS' INTERESTS THEREIN. (i) The Trustee, on behalf of the Certificateholders, shall possess all right, title and interest in all funds on deposit from time to time in the Collection Account and in all proceeds thereof. The Collection Account shall be under the sole dominion and control of the Trustee for the benefit of the Investor Certificateholders and, to the extent set forth in any Supplement, any holder of any Subordinated Company Certificate. If, at any time, the Servicer has actual notice or knowledge that any institution holding the Collection Account is other than the corporate trust department of the Trustee or an affiliate of the Trustee or has ceased to be an Eligible Institution, the Servicer shall direct the Trustee to establish within 30 days a substitute account therefor with an Eligible Institution, transfer any cash and/or any Eligible Investments to such new account and from the date any such substitute accounts are established, such account shall be the Collection Account. Neither the Company nor the Servicer, nor any person or entity claiming by, through or under the Company or Servicer, shall have any right, title or interest in, except to the extent expressly provided under the Transaction Documents, or any right to withdraw any amount from, the Collection Account. Pursuant to the authority granted to the Servicer in subsection 2.2(a) of the Servicing Agreement, the Servicer shall have the power, revocable by the Trustee, to instruct the Trustee to make withdrawals from and payments to the Collection Account for the purposes of carrying out the Servicer's or Trustee's duties hereunder. (i) Each Series of Investor Certificates shall represent Fractional Undivided Interests in the Trust as indicated in the Supplement (including any Enhancement applicable to such Series as specified in the related Supplement) relating to such Series and the right to receive Collections and other amounts at the times and in the amounts specified in this Article III (as supplemented by the Supplement related to such Series) to be deposited in the Collection Account and any other accounts maintained for the benefit of the Investor Certificateholders or paid to the Investor Certificateholders (with respect to each outstanding Series, the "CERTIFICATEHOLDERS' INTEREST"). The Exchangeable Company Certificate shall represent the interest in the Trust not represented by any Series of Investor Certificates or Subordinated Company Certificates then outstanding, including the right to receive Collections and other amounts at the times and in the amounts specified in this Article III to be paid to the Company (the "COMPANY INTEREST"), and each Subordinated Company Certificate, if any, shall represent the interests granted to such Certificate pursuant to the related Supplement; PROVIDED, HOWEVER, that no such Exchangeable Company Certificate or Subordinated Company Certificate shall represent any interest in any Trust Account and any other accounts maintained for the benefit of the Investor Certificateholders, except as specifically provided in Article III. (b) ADMINISTRATION OF THE COLLECTION ACCOUNT. At the written direction of the Servicer, funds on deposit in the Collection Account available for investment shall be invested by the Trustee in Eligible Investments selected by the Company. All such Eligible Investments shall be held by the Trustee for the benefit of the Investor Certificateholders. Amounts on deposit in each Series Non-Principal Collection Sub-subaccount shall, if applicable, be invested in Eligible Investments that will mature, or that are payable or redeemable upon demand of the holder thereof, so that such funds will be available on or before the Business Day immediately preceding the next Distribution Date. None of such Eligible Investments shall be disposed of prior to the 42 maturity date with respect thereto unless such disposition is reasonably necessary to prevent a loss. All interest and investment earnings (net of losses and investment expenses) (the "INVESTMENT EARNINGS") on funds deposited in a Series Non-Principal Collection Sub-subaccount shall be deposited in such sub-subaccount. Amounts on deposit in the Series Principal Collection Sub- subaccounts and any other sub-subaccounts as specified in the related Supplement shall be invested in Eligible Investments that mature, or that are payable or redeemable upon demand of the holder thereof, so that such funds will be available not later than the date which is specified in any Supplement. The Trustee, or its nominee or custodian, shall maintain possession of the instruments or securities, if any, evidencing any Eligible Investments from the time of purchase thereof until the time of sale or maturity. Any Investment Earnings on such invested funds in a Series Principal Collection Sub-subaccount and any other sub-subaccounts as specified in the related Supplement will be deposited in the related Series Non-Principal Collection Sub-subaccount. (c) DAILY COLLECTIONS. (i) Promptly following its receipt of Collections in the form of available funds in the Lockbox Accounts, but in no event later than the Business Day following such receipt (such later Business Day, the "DEPOSIT DATE"), the Servicer shall transfer, or cause to be transferred, all Collections on deposit (less the aggregate amount of set-offs permitted to be retained pursuant to any applicable Lockbox Agreement) in the form of available funds in the Lockbox Accounts directly to the Collection Account. (i) No later than the Business Day following each Deposit Date, the Trustee shall (in accordance with the written directions received from the Servicer pursuant to subsection (h) below, upon which the Trustee may conclusively rely) transfer from Aggregate Daily Collections deposited into the Collection Account pursuant to subsection (d)(i) above on such Deposit Date, to the respective Series Collection Subaccount, an amount equal to the product of (x) the applicable Invested Percentage for such Outstanding Series and (y) such Aggregate Daily Collections. (ii) No later than the Business Day following each Deposit Date, the Trustee shall (in accordance with the written directions received from the Servicer pursuant to subsection (h) below, upon which the Trustee may conclusively rely) allocate funds transferred to the Series Collection Subaccount for each Outstanding Series pursuant to subsection (d)(ii) above to the Series Non-Principal Collection Sub-subaccount, the Series Principal Collection Sub-subaccount and such other Sub-subaccounts of each such Series in accordance with the related Supplement for such Series. (iii) No later than the Business Day following each Deposit Date, except as otherwise provided in a Supplement, the Trustee shall (in accordance with the written directions received from the Servicer pursuant to subsection (h) below, upon which the Trustee may conclusively rely) transfer to the Company Collection Subaccount from Aggregate Daily Collections deposited into the Collection Account pursuant to subsection (d)(i) above on such Deposit Date, the remaining funds (less an amount equal to the costs and expenses, if any, incurred by the Trustee with respect to the sale of the Receivables pursuant to subsection 7.2(a) or 9.1(b) and reimbursable to the Trustee as provided in Section 8.5), if any, on deposit in the 43 Collection Account on such date after giving effect to transfers to be made pursuant to subsection (d)(ii) above. (d) CERTAIN ALLOCATIONS FOLLOWING AN AMORTIZATION PERIOD. (i) If, on any Settlement Report Date, an Amortization Period has occurred and is continuing with respect to any Outstanding Series and at such Settlement Report Date, a Revolving Period is still in effect with respect to any other Outstanding Series (a "SPECIAL ALLOCATION SETTLEMENT REPORT DATE"), then the Servicer shall make the following calculations: (A) the amount (the "ALLOCABLE CHARGED-OFF AMOUNT") equal to the excess, if any, of (I) the aggregate Principal Amount of Charged-Off Receivables for the related Settlement Period over (II) the aggregate Principal Amount of Recoveries received during the related Settlement Period; (B) the amount (the "ALLOCABLE RECOVERIES AMOUNT") equal to the excess, if any, of (I) the aggregate Principal Amount of Recoveries received during the related Settlement Period over (II) the aggregate Principal Amount of Charged-Off Receivables for the related Settlement Period; and (ii) If, on any Special Allocation Settlement Report Date, any of the Allocable Charged-Off Amount or the Allocable Recoveries Amount is greater than zero for the related Settlement Period, the Trustee shall (in accordance with written directions received pursuant to subsection (b)(i) above, upon which the Trustee may conclusively rely) make (A) a pro rata allocation to each Outstanding Series (based on the Invested Percentage for such Series) of a portion (as determined in clause (iii) below) of each such positive amount and (B) an allocation to the Exchangeable Company Certificate of the remaining portion of each such positive amount. (iii) With respect to each portion of the Allocable Charged-Off Amount and the Allocable Recoveries Amount which is allocated to an Outstanding Series pursuant to subsection 3.1(e)(ii), the Trustee shall apply each such amount to such Series in accordance with the related Supplement for such Series. (e) ALLOCATIONS FOR THE EXCHANGEABLE COMPANY CERTIFICATE. Until the occurrence and continuance of an Early Amortization Period, on each Business Day and, after the occurrence and continuance of an Early Amortization Period and until the Trust Termination Date, on each Distribution Date, after making all allocations required pursuant to subsection 3.1(d) the Trustee shall (in accordance with the written direction of the Servicer, upon which the Trustee may conclusively rely) transfer to the holder of the Exchangeable Company Certificate the amounts on deposit in the Company Collection Subaccount. (f) SET-OFF. (i) In addition to the provisions of Section 8.5, if the Company shall fail to make a payment as provided in this Agreement or any Supplement, the Servicer or the Trustee may set off and apply any amounts otherwise payable to the Company under any Pooling and Servicing Agreement. The Company hereby waives demand, notice or declaration of such 44 set-off and application; PROVIDED that notice will promptly be given to the Company of such set-off; PROVIDED FURTHER that failure to give such notice shall not affect the validity of such set-off. (i) In addition to the provisions of Section 8.5, in the event the Servicer shall fail to make a payment as provided in any Pooling and Servicing Agreement, the Trustee may set off and apply any amounts otherwise payable to the Servicer in its capacity as Servicer under the Transaction Documents on account of such obligation. The Servicer hereby waives demand, notice or declaration of such set-off and application; PROVIDED that notice will promptly be given to the Servicer of such set-off; PROVIDED FURTHER that failure to give such notice shall not affect the validity of such set-off. (g) ALLOCATION AND APPLICATION OF FUNDS. The Servicer shall direct the Trustee in writing in a timely manner to apply all Collections with respect to the Receivables as described in this Article III and in the Supplement with respect to each Outstanding Series. The Servicer shall direct the Trustee in writing to pay Collections to the holder of the Exchangeable Company Certificate to the extent such Collections are allocated to the Exchangeable Company Certificate under subsection 3.1(f) and as otherwise provided in Article III. Notwithstanding anything in this Agreement, any Supplement or any other Transaction Document to the contrary, to the extent that the Trustee receives any Daily Report prior to 2:00 p.m., New York City time, on any Business Day, the Trustee shall make any applications of funds required thereby on the same Business Day and otherwise on the next succeeding Business Day. THE REMAINDER OF ARTICLE III SHALL BE SPECIFIED IN THE SUPPLEMENT WITH RESPECT TO EACH SERIES. SUCH REMAINDER SHALL BE APPLICABLE ONLY TO THE SERIES RELATING TO THE SUPPLEMENT IN WHICH SUCH REMAINDER APPEARS. IV ARTICLE IV IS RESERVED AND MAY BE SPECIFIED IN ANY SUPPLEMENT WITH RESPECT TO THE SERIES RELATING THERETO 45 V THE CERTIFICATES V.1. THE CERTIFICATES. The Investor Certificates of each Series, any Class thereof and any Subordinated Company Certificates related thereto shall be in fully registered form and shall be substantially in the form of the exhibits with respect thereto attached to the applicable Supplement. The Exchangeable Company Certificate shall be substantially in the form of Exhibit A. The Certificates shall, upon issue, be executed and delivered by the Company to the Trustee for authentication and redelivery as provided in Section 5.2. Except as otherwise set forth in the related Supplement, the Investor Certificates shall be issued in minimum denominations of $500,000 and in integral multiples of $100,000 in excess thereof unless otherwise specified in any Supplement for any Series and Class. Unless otherwise specified in any Supplement for any Series, the Investor Certificates shall be issued upon initial issuance as a single global certificate in an original principal amount equal to the Initial Invested Amount with respect to such Series. Each Subordinated Company Certificate, if any, issued under any Supplement shall be a single certificate and shall represent a subordinated interest in the Trust Assets allocated to such Series, as designated in the related Supplement. The Exchangeable Company Certificate shall also be a single certificate and shall represent the entire Company Interest. The Company is hereby authorized to execute and deliver each Certificate on behalf of the Trust. Each Certificate shall be executed by manual or facsimile signature on behalf of the Company by a Responsible Officer. Certificates bearing the manual or facsimile signature of the individual who was, at the time when such signature was affixed, authorized to sign on behalf of the Company or the Trustee shall not be rendered invalid, notwithstanding that such individual has ceased to be so authorized prior to or on the date of the authentication and delivery of such Certificates or does not hold such office at the date of such Certificates. No Certificate shall be entitled to any benefit under this Agreement, or be valid for any purpose, unless there appears on such Certificate a certificate of authentication substantially in the form provided for herein executed by or on behalf of the Trustee by the manual signature of a duly authorized signatory, and such certificate of authentication upon any Certificate shall be conclusive evidence, and the only evidence, that such Certificate has been duly authenticated and delivered hereunder. All Certificates shall be dated the date of their authentication but failure to do so shall not render them invalid. V.2. AUTHENTICATION OF CERTIFICATES. The Trustee shall authenticate and deliver the initial Series of the Investor Certificates that is issued upon original issuance, upon the written order of the Company in a form reasonably satisfactory to the Trustee, to the holders of the initial Series of Investor Certificates, against payment to the Company of the Initial Invested Amount, and to the Company, the related Subordinated Company Certificate, if any, as provided in the applicable Supplement. The Trustee shall authenticate and deliver the Exchangeable Company Certificate to the Company simultaneously with its delivery of the initial Series of Investor Certificates. The Certificates shall be duly authenticated by or on behalf of the Trustee, in the case of the Investor Certificates in authorized denominations equal to (in the aggregate) the Initial Invested Amount, in the case of any Subordinated Company Certificate, in a denomination equal to the subordinated interest in the Trust Assets allocated to such Certificate in accordance with the terms of the related Supplement and, in the case of the Exchangeable Company Certificate, in 46 a denomination equal to the remaining Company Interest from time to time, and together evidencing the entire ownership of the Trust. Upon a Company Exchange as provided in Section 5.10 and the satisfaction of certain other conditions specified therein, the Trustee shall authenticate and deliver the Certificates of additional Series (with the designation provided in the applicable Supplement) (or, if provided in any Supplement, the additional Investor Certificates of an existing Series), upon the written order of the Company, to the Persons designated in such Supplement. Upon the order of the Company, the Investor Certificates of any Series shall be duly authenticated by or on behalf of the Trustee, in authorized denominations equal to (in the aggregate) the Initial Invested Amount of such Series of Investor Certificates. V.3. REGISTRATION OF TRANSFER AND EXCHANGE OF CERTIFICATES. (a) The Trustee shall cause to be kept at the office or agency to be maintained by a transfer agent and registrar (which may be the Trustee) (the "TRANSFER AGENT AND REGISTRAR") in accordance with the provisions of Section 8.16 a register (the "CERTIFICATE REGISTER") in which, subject to such reasonable regulations as the Trustee may prescribe, the Transfer Agent and Registrar shall provide for the registration of the Investor Certificates and of transfers and exchanges of the Investor Certificates as herein provided. The Company hereby appoints the Trustee as Transfer Agent and Registrar for the purpose of registering the Investor Certificates and transfers and exchanges of the Investor Certificates as herein provided. The Trustee shall be permitted to resign as Transfer Agent and Registrar upon 30 days' written notice to the Company and the Servicer; PROVIDED, HOWEVER, that such resignation shall not be effective and the Trustee shall continue to perform its duties as Transfer Agent and Registrar until the Trustee has appointed a successor Transfer Agent and Registrar reasonably acceptable to the Company and such successor Transfer Agent and Registrar has accepted such appointment. The provisions of Sections 8.1, 8.2, 8.3, 8.5 and 10.19 shall apply to the Trustee also in its role as Transfer Agent or Registrar, as the case may be, for so long as the Trustee shall act as Transfer Agent or Registrar, as the case may be. The Company hereby agrees to provide the Trustee from time to time sufficient funds, on a timely basis and in accordance with and subject to Section 8.5, for the payment of any reasonable compensation payable to the Transfer Agent and Registrar for their services under this Section 5.3. The Trustee hereby agrees that, upon the receipt of such funds from the Company, it shall pay the Transfer Agent and Registrar such amounts. Upon surrender for registration of transfer of any Investor Certificate at any office or agency of the Transfer Agent and Registrar maintained for such purpose, the Company shall execute, and, upon the written request of the Company, the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Investor Certificates in authorized denominations of the same Series representing like aggregate Fractional Undivided Interests and which bear numbers that are not contemporaneously outstanding. At the option of an Investor Certificateholder, Investor Certificates may be exchanged for other Investor Certificates of the same Series in authorized denominations of like aggregate Fractional Undivided Interests, bearing numbers that are not contemporaneously outstanding, upon surrender of the Investor Certificates to be exchanged at any such office or agency of the Transfer Agent and Registrar maintained for such purpose. 47 Whenever any Investor Certificates of any Series are so surrendered for exchange, the Company shall execute, and, upon the written request of the Company, the Trustee shall authenticate and (unless the Transfer Agent and Registrar is different from the Trustee, in which case the Transfer Agent and Registrar shall) deliver, the Investor Certificates of such Series which the Certificateholder making the exchange is entitled to receive. Every Investor Certificate presented or surrendered for registration of transfer or exchange shall be accompanied by a written instrument of transfer substantially in the form attached to the form of such Investor Certificate and duly executed by the Certificateholder thereof or his attorney-in-fact duly authorized in writing delivered to the Trustee (unless the Transfer Agent and Registrar is different from the Trustee, in which case to the Transfer Agent and Registrar) and complying with any requirements set forth in the applicable Supplement. No service charge shall be made for any registration of transfer or exchange of Investor Certificates, but the Transfer Agent and Registrar may require any Certificateholder that is transferring or exchanging one or more Certificates to pay a sum sufficient to cover any tax or governmental charge that may be imposed in connection with any transfer or exchange of Investor Certificates. All Investor Certificates surrendered for registration of transfer and exchange shall be cancelled and disposed of in a customary manner satisfactory to the Trustee. The Company shall execute and deliver Certificates to the Trustee or the Transfer Agent and Registrar in such amounts and at such times as are necessary to enable the Trustee and the Transfer Agent and Registrar to fulfill their respective responsibilities under this Agreement and the Certificates. (a) The Transfer Agent and Registrar will maintain at its expense in the Borough of Manhattan, The City of New York and, subject to subsection 5.3(a), if specified in the related Supplement for any Series, any other city designated in such Supplement, an office or offices or agency or agencies where Investor Certificates may be surrendered for registration or transfer or exchange. (b) Unless otherwise stated in any related Supplements, registration of transfer of Certificates containing a legend relating to restrictions on transfer of such Certificates (which legend shall be set forth in the Supplement relating to such Investor Certificates) shall be effected only if the conditions set forth in the related Supplement are complied with. Certificates issued upon registration or transfer of, or in exchange for, Certificates bearing the legend referred to above shall also bear such legend unless the Company, the Servicer, the Trustee and the Transfer Agent and Registrar receive an Opinion of Counsel satisfactory to each of them, to the effect that such legend may be removed. (c) (i) The Company may not transfer, assign, exchange or otherwise pledge or convey the Subordinated Company Certificate of any Series or the Exchangeable Company 48 Certificate except, with respect to the Exchangeable Company Certificate, pursuant to Section 5.10. (ii) Neither the Company nor the Servicer shall at any time participate in the listing of the Investor Certificates on an "established securities market" within the meaning of Section 7704(b)(1) of the Internal Revenue Code and any proposed, temporary or final treasury regulation thereunder as of the date hereof, including, without limitation, an over- the-counter or interdealer quotation system that regularly disseminates firm buy or sell quotations. (d)(i) No transfer of an Investor Certificate or grant of a participation therein shall be permitted if (A) the transfer or grant would cause the number of Targeted Holders (as defined below) to exceed one hundred or (B) the transferee or grantee, as the case may be, that is a Targeted Holder, is a trust, partnership or "S corporation" (within the meaning of Section 1361(a) of the Code) (a "FLOW-THROUGH ENTITY"), unless such flow-through entity represents that less than 50% of the aggregate value of such flow-through entity's assets consist of Investor Certificates. "Targeted Holder" shall mean (x) each holder of a right to receive interest or principal with respect to any Class or Series of Investor Certificates (other than Investor Certificates with respect to which an Opinion of Counsel is rendered that such certificates will be treated as debt for federal income tax purposes), (y) each holder of a right to receive any amount in respect of the Exchangeable Company Certificate or any Subordinated Company Certificate and (z) the Servicer and any Sub-Servicer that receives any portion of the Servicing Fee; PROVIDED, HOWEVER, that any Person holding more than one interest with respect to the Investor Certificates or the Trust, each of which separately would cause such Person to be a Targeted Holder, shall be treated as a single Targeted Holder. (ii) Any determination by the Transfer Agent and Registrar (in accordance with the information contained in the Certificate Register and the certifications made by each transferee and participant pursuant to the applicable Supplement, upon which information the Transfer Agent and Registrar may conclusively rely) that the event described in clause (i)(A) of this subsection 5.3(e) would occur as the result of a transfer of an Investor Certificate or the grant of a participation therein shall be (X) communicated in writing to the transferring or granting Certificateholder prior to the effective date set out in the notice of transfer or participation required by, or otherwise provided for under, the related Supplement and (Y) binding upon the parties absent manifest error. V.4. MUTILATED, DESTROYED, LOST OR STOLEN CERTIFICATES. If (a) any mutilated Certificate is surrendered to the Transfer Agent and Registrar, or the Transfer Agent and Registrar receives evidence in the form of a certification by the Certificateholder thereof of the destruction, loss or theft of any Certificate and (b) there is delivered to the Transfer Agent and Registrar and the Trustee such security or indemnity as may be required by them to save the Trust and each of them harmless, then, in the absence of actual notice to the Trustee or Transfer Agent and Registrar that such Certificate has been acquired by a bona fide purchaser, the Company shall execute and, upon the written request of the Company, the Trustee shall authenticate and deliver, in exchange for or in lieu of any such mutilated, destroyed, lost or stolen Certificate, a new Certificate of like tenor and aggregate Fractional Undivided Interest and bearing a number that is 49 not contemporaneously outstanding. In connection with the issuance of any new Certificate under this Section 5.4, the Trustee or the Transfer Agent and Registrar may require the payment by the Certificateholder of a sum sufficient to cover any tax or other governmental expenses (including the fees and expenses of the Trustee and Transfer Agent and Registrar) connected therewith. Any duplicate Certificate issued pursuant to this Section 5.4 shall constitute complete and indefeasible evidence of ownership in the Trust, as if originally issued, whether or not the lost, stolen or destroyed Certificate shall be found at any time. V.5. PERSONS DEEMED OWNERS. At all times prior to due presentation of a Certificate for registration of transfer, the Company, the Trustee, the Paying Agent, the Transfer Agent and Registrar, any Agent and any agent of any of them may treat the Person in whose name any Certificate is registered as the owner of such Certificate for the purpose of receiving distributions pursuant to Article IV of the related Supplement and for all other purposes whatsoever, and neither the Trustee, the Paying Agent, the Transfer Agent and Registrar, any Agent nor any agent of any of them shall be affected by any notice to the contrary. Notwithstanding the foregoing provisions of this Section 5.5, in determining whether the holders of the requisite Fractional Undivided Interests have given any request, demand, authorization, direction, notice, consent or waiver hereunder, Certificates owned by the Company, the Servicer or any Affiliate thereof shall be disregarded and deemed not to be outstanding, except that, in determining whether the Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Certificates which a Responsible Officer of the Trustee actually knows to be so owned shall be so disregarded. Certificates so owned by the Company, the Servicer or any Affiliate thereof which have been pledged in good faith shall not be disregarded and may be regarded as outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee's right so to act with respect to such Certificates and that the pledgee is not the Company, the Servicer or an Affiliate thereof. V.6. APPOINTMENT OF PAYING AGENT. The Paying Agent shall make distributions to Investor Certificateholders from the Collection Account (and/or any other account or accounts maintained for the benefit of Certificateholders as specified in the related Supplement for any Series) pursuant to Articles III and IV. The Trustee may revoke such power and remove the Paying Agent if the Trustee determines in its sole discretion that the Paying Agent shall have failed to perform its obligations under this Agreement in any material respect. Unless otherwise specified in the related Supplement for any Series and with respect to such Series, the Paying Agent shall initially be the Trustee and, if the Trustee so chooses, any co-paying agent chosen by the Trustee. Each Paying Agent shall have a combined capital and surplus of at least $50,000,000. The Paying Agent shall be permitted to resign upon 30 days' written notice to the Trustee. In the event that the Paying Agent shall so resign, the Trustee shall appoint a successor to act as Paying Agent (which shall be a depositary institution or trust company) reasonably acceptable to the Company which appointment shall be effective on the date on which the Person so appointed gives the Trustee written notice that it accepts the appointment. Any resignation or removal of the Paying Agent and appointment of successor Paying Agent pursuant to this Section 5.6 shall not become effective until acceptance of appointment by the successor Paying Agent, as provided in this Section 5.6. The Trustee shall cause such successor Paying Agent or any additional Paying Agent appointed by the Trustee to execute and deliver to the Trustee an 50 instrument in which such successor Paying Agent or additional Paying Agent shall agree with the Trustee that as Paying Agent, such successor Paying Agent or additional Paying Agent will hold all sums, if any, held by it for payment to the Investor Certificateholders in trust for the benefit of the Investor Certificateholders entitled thereto until such sums shall be paid to such Certificateholders. The Paying Agent shall return all unclaimed funds to the Trustee and upon removal of a Paying Agent such Paying Agent shall also return all funds in its possession to the Trustee. The provisions of Sections 8.1, 8.2, 8.3, 8.5 and 10.19 shall apply to the Trustee also in its role as Paying Agent, for so long as the Trustee shall act as Paying Agent. Any reference in this Agreement to the Paying Agent shall include any co-paying agent, if any, unless the context requires otherwise. The Company hereby agrees to provide the Trustee from time to time sufficient funds, on a timely basis and in accordance with and subject to Section 8.5, for the payment of any reasonable compensation payable to the Paying Agent for its services under this Section 5.6. The Trustee hereby agrees that, upon the receipt of such funds from the Company, it shall pay the Paying Agent such amounts. V.7. ACCESS TO LIST OF CERTIFICATEHOLDERS' NAMES AND ADDRESSES. The Trustee will furnish or cause to be furnished by the Transfer Agent and Registrar to the Company, the Servicer or the Paying Agent, within ten Business Days after receipt by the Trustee of a request therefor from the Company, the Servicer or the Paying Agent, respectively, in writing, a list of the names and addresses of the Investor Certificateholders as then recorded by or on behalf of the Trustee. If three or more Investor Certificateholders of record or any Investor Certificateholder of any Series or a group of Investor Certificateholders of record representing Fractional Undivided Interests aggregating not less than 10% of the Invested Amount of the related Outstanding Series (the "APPLICANTS") apply in writing to the Trustee, and such application states that the Applicants desire to communicate with other Investor Certificateholders of any Series with respect to their rights under this Agreement or under the Investor Certificates and is accompanied by a copy of the communication which such Applicants propose to transmit, then the Trustee, after having been adequately indemnified by such Applicants for its costs and expenses, shall transmit or shall cause the Transfer Agent and Registrar to transmit, such communication to the Certificateholders reasonably promptly after the receipt of such application. Every Certificateholder, by receiving and holding a Certificate, agrees with the Trustee that neither the Trustee, the Transfer Agent and Registrar, nor any of their respective agents, officers, directors or employees shall be held accountable by reason of the disclosure or mailing of any such information as to the names and addresses of the Certificateholders hereunder, regardless of the sources from which such information was derived. As soon as practicable following each Record Date, the Trustee shall provide to the Paying Agent or its designee, a list of Certificateholders in such form as the Paying Agent may reasonably request. V.8. AUTHENTICATING AGENT. (a) The Trustee may appoint one or more authenticating agents with respect to the Certificates which shall be authorized to act on behalf of 51 the Trustee in authenticating the Certificates in connection with the issuance, delivery, registration of transfer, exchange or repayment of the Certificates. Whenever reference is made in this Agreement to the authentication of Certificates by the Trustee or the Trustee's certificate of authentication, such reference shall be deemed to include authentication on behalf of the Trustee by an authenticating agent and a certificate of authentication executed on behalf of the Trustee by an authenticating agent. Each authenticating agent must be acceptable to the Company. (a) Any institution succeeding to the corporate trust business of an authenticating agent shall continue to be an authenticating agent without the execution or filing of any paper or any further act on the part of the Trustee or such authenticating agent. (b) An authenticating agent may at any time resign by giving written notice of resignation to the Trustee. Upon the receipt by the Trustee of any such notice of resignation and upon the giving of any such notice of termination by the Trustee, the Trustee shall immediately give notice of such resignation or termination to the Company. Any resignation of an authenticating agent shall not become effective until acceptance of appointment by the successor authenticating agent as provided in this Section 5.8. The Trustee may at any time terminate the agency of an authenticating agent by giving notice of termination to such authenticating agent. Upon receiving such a notice of resignation or upon such a termination, or in case at any time an authenticating agent shall cease to be acceptable to the Trustee, the Trustee promptly may appoint a successor authenticating agent. Any successor authenticating agent upon acceptance of its appointment hereunder shall become vested with all the rights, powers and duties of its predecessor hereunder, with like effect as if originally named as an authenticating agent. No successor authenticating agent (other than an Affiliate of the Trustee) shall be appointed unless reasonably acceptable to the Trustee and the Company. (c) The Company hereby agrees to provide the Trustee from time to time sufficient funds, on a timely basis and in accordance with and subject to Section 8.5, for the payment of any reasonable compensation payable to each authenticating agent for its services under this Section 5.8. The Trustee hereby agrees that, upon the receipt of such funds from the Company it shall pay each authenticating agent such amounts. (d) The provisions of Sections 8.1, 8.2, 8.3 and 8.5 shall be applicable to any authenticating agent. (e) Pursuant to an appointment made under this Section 5.8, the Certificates may have endorsed thereon, in lieu of the Trustee's certificate of authentication, an alternate certificate of authentication in substantially the following form: 52 "This is one of the Certificates described in the Pooling Agreement dated as of May 16, 1996, among Rykoff-Sexton Funding Corporation, Rykoff- Sexton, Inc., as Servicer and Chemical Bank, as Trustee. ------------------------- as Authenticating Agent for the Trustee By ---------------------------------------- Authorized Signatory" V.9. TAX TREATMENT. It is the intent of the Servicer, the Company, the Investor Certificateholders and the Trustee that, for federal, state and local income and franchise tax purposes, the Investor Certificates be treated as evidence of indebtedness secured by the Trust Assets and the Trust not be characterized as an association taxable as a corporation. The Company and the Trustee, by entering into this Agreement, and each Investor Certificateholder, by its acceptance of its Investor Certificate, agree to treat the Investor Certificates for federal, state and local income and franchise tax purposes as indebtedness. The provisions of this Agreement and all related Transaction Documents shall be construed to further these intentions of the parties. This Section 5.9 shall survive the termination of this Agreement and shall be binding on all transferees of any of the foregoing persons. V.10. TENDER OF EXCHANGEABLE COMPANY CERTIFICATE. (a) The Company may tender the Exchangeable Company Certificate to the Trustee in exchange for (i) (A) an increase in the Invested Amount of a Class of Investor Certificates of an Outstanding Series and an increase in the related Subordinated Company Certificate or (B) one or more newly issued Series of Investor Certificates and the related newly issued Subordinated Company Certificate (a "NEW SERIES"), and (ii) a reissued Exchangeable Company Certificate (any such tender, a "COMPANY EXCHANGE"). The Company may perform a Company Exchange by notifying the Trustee, in writing at least six days in advance (an "EXCHANGE NOTICE") of the date upon which the Company Exchange is to occur (an "EXCHANGE DATE"). Any Exchange Notice shall state the designation of any Series (and/or Class, if applicable) to be issued (or supplemented) on the Exchange Date and, with respect to each such Series (and/or Class, if applicable): (a) its additional or Initial Invested Amount, as the case may be, if any, which in the aggregate at any time may not be greater than the current principal amount of the Exchangeable Company Certificate, if any, at such time, (b) its Certificate Rate (or the method for allocating interest payments or other cash flow to such Series), if any and (c) whether such New Series will be a companion series to an Outstanding Series (an "EXISTING COMPANION SERIES"; and together with the New Series, a "COMPANION SERIES"). On the Exchange Date, the Trustee shall, upon the written order of the Company, authenticate and deliver any Certificates evidencing an increase in the Invested Amount of a Class of Investor Certificates or a newly issued Series only upon delivery by the Company to the Trustee of the following (together with the delivery by the Company to the Trustee of any 53 additional agreements, instruments or other documents as are specified in the related Supplement): (a) a Supplement executed by the Company and specifying the Principal Terms of such Series (provided that no such Supplement shall be required for any increase in the Invested Amount of a Class of Investor Certificates unless it is so required by the related Supplement), (b) a Tax Opinion addressed to the Trustee and the Trust, (c) a General Opinion addressed to the Trustee and the Trust, (d) written confirmation from each Rating Agency that the Company Exchange will not result in the Rating Agency's reducing or withdrawing its rating on any then Outstanding Series rated by it and (e) the existing Exchangeable Company Certificate or applicable Investor Certificates and Subordinated Company Certificates, as the case may be. Upon the delivery of the items listed in clauses (a) through (e) above, the Trustee shall cancel the existing Exchangeable Company Certificate and the applicable Subordinated Company Certificates, as the case may be, and issue, as provided above, such Series of Investor Certificates, such Series of Subordinated Company Certificate, if applicable, and a new Exchangeable Company Certificate, dated the Exchange Date. There is no limit to the number of Company Exchanges that the Company may perform under this Agreement. If the Company shall, on any Exchange Date, retain any Investor Certificates issued on such Exchange Date, it shall, prior to transferring any such Certificates to another Person, obtain a Tax Opinion. Additional restrictions relating to a Company Exchange may be set forth in any Supplement. (a) Upon any Company Exchange, the Trustee, in accordance with the written directions of the Company, shall issue to the Company under Section 5.1, for execution and redelivery to the Trustee for authentication under Section 5.2, (i) one or more Certificates representing an increase in the Invested Amount of an Outstanding Series, and an increase in the related Subordinated Company Certificate, or (ii) one or more new Series of Investor Certificates and the related Series of Subordinated Company Certificate. Any such Certificates shall be substantially in the form specified in the applicable Supplement and each shall bear, upon its face, the designation for such Series to which each such certificate belongs so selected by the Company. (b) In conjunction with a Company Exchange, the parties hereto shall, except as otherwise provided in subsection (a) above, execute a supplement to this Agreement, which shall define, with respect to any additional Investor Certificates or newly issued Series, as the case may be: (i) its name or designation, (ii) its additional or initial principal amount, as the case may be (or method for calculating such amount), (iii) its coupon rate (or formula for the determination thereof), (iv) the interest payment date or dates and the date or dates from which interest shall accrue, (v) the method for allocating Collections to Certificateholders, including the applicable Investor Percentage, (vi) the names of any accounts to be used by such Series and the terms governing the operation of any such accounts, (vii) the issue and terms of a letter of credit or other form of Enhancement, if any, with respect thereto, (viii) the terms on which the certificates of such Series may be repurchased by the Company or may be remarketed to other investors, (viii) the Series Termination Date, (ix) any deposit account maintained for the benefit of Certificateholders, (x) the number of Classes of such Series, and if more than one Class, the rights and priorities of each such Class, (xi) the rights of the holder of the Exchangeable Company Certificate that have been transferred to the holders of such Series, (xii) the designation of any Series Accounts and the terms governing the operation of any such Series Accounts, (xiii) 54 provisions acceptable to the Trustee concerning the payment of the Trustee's fees and expenses and (xiv) other relevant terms (all such terms, the "PRINCIPAL TERMS" of such Series). The Supplement executed in connection with the Company Exchange shall contain administrative provisions which are reasonably acceptable to the Trustee. (c) In order for a New Series to be part of a Companion Series, the Supplement for the related Existing Companion Series must provide for or permit the Amortization Period to commence on the Issuance Date for such New Series, and on or prior to the Issuance Date for the New Series the Servicer and the Company shall take all actions, if any, necessary to cause the Amortization Period for such Existing Companion Series to commence on such Issuance Date. The proceeds from the issuance of the New Series shall be deposited in the applicable Series Principal Collection Sub-subaccount and the Company shall, on the Issuance Date for such New Series, deposit into the applicable Series Non- Principal Sub-subaccount the amount of interest that will accrue on the New Series over a period specified in the related Supplement for such New Series. On each day on which principal is paid to the holders of the Existing Companion Series, the Trustee shall distribute to the Company from the applicable Series Principal Collection Sub-subaccount of the New Series an amount (up to the amount of available funds in such account) equal to the amount distributed on such day to the Investor Certificateholders of any Existing Companion Series; PROVIDED that, after giving effect to such distributions, the Aggregate Receivables Amount shall equal or exceed the sum of (i) the Target Receivables Amount with respect to such Existing Companion Series on such day, PLUS (ii) the Target Receivables Amount with respect to the New Series on such day, PLUS (iii) the Target Receivables Amount with respect to any other Outstanding Series on such day; PROVIDED FURTHER that the Trustee may conclusively rely on the calculations of the Servicer of such amounts. (d) Except as specified in any Supplement for a related Series, all Investor Certificates of any Series shall be equally and ratably entitled as provided herein to the benefits hereof without preference, priority or distinction on account of the actual time or times of authentication and delivery, all in accordance with the terms and provisions of this Agreement and the applicable Supplement. V.11. BOOK-ENTRY CERTIFICATES. If specified in any related Supplement, the Investor Certificates, or any portion thereof, upon original issuance, shall be issued in the form of one or more typewritten Certificates representing the Book-Entry Certificates, to be delivered to the depository specified in such Supplement (the "DEPOSITORY") which shall be the Clearing Agency, specified by, or on behalf of, the Company for such Series. The Investor Certificates shall initially be registered on the Certificate Register in the name of the nominee of such Clearing Agency, and no Certificate Book- Entry Holder will receive a definitive certificate representing such Certificate Book-Entry Holder's interest in the Investor Certificates, except as provided in Section 5.13. Unless and until definitive, fully registered Investor Certificates ("DEFINITIVE CERTIFICATES") have been issued to Certificateholders pursuant to Section 5.13 or the related Supplement: (a) the provisions of this Section 5.11 shall be in full force and effect; 55 (b) the Company, the Servicer and the Trustee may deal with each Clearing Agency for all purposes (including the making of distributions on the Investor Certificates) as the Certificateholder without respect to whether there has been any actual authorization of such actions by the Certificate Book-Entry Holders with respect to such actions; (c) to the extent that the provisions of this Section 5.11 conflict with any other provisions of this Agreement, the provisions of this Section 5.11 shall control; and (d) the rights of Certificate Book-Entry Holders shall be exercised only through the Clearing Agency and the related Clearing Agency Participants and shall be limited to those established by law and agreements between such related Certificate Book-Entry Holders and the Clearing Agency and/or the Clearing Agency Participants. Pursuant to the Depository Agreement, the initial Clearing Agency will make book-entry transfers among the Clearing Agency Participants and receive and transmit distributions of principal and interest on the Investor Certificates to such Clearing Agency Participants. Notwithstanding the foregoing, no Class or Series of Investor Certificates may be issued as Book Entry Certificates (but, instead, shall be issued as Definitive Certificates) unless at the time of issuance of such Class or Series the Company and the Trustee receive an opinion of independent counsel that the Certificates of such Class or Series will be treated as indebtedness for federal income tax purposes. V.12. NOTICES TO CLEARING AGENCY. Whenever notice or other communication to the Certificateholders is required under this Agreement, unless and until Definitive Certificates shall have been issued to Certificate Book- Entry Holders pursuant to Section 5.13, the Trustee shall give all such notices and communications specified herein to be given to the Investor Certificateholders to the Clearing Agencies. V.13. DEFINITIVE CERTIFICATES. If (a)(i) the Company advises the Trustee in writing that any Clearing Agency is no longer willing or able to properly discharge its responsibilities under the applicable Depository Agreement, and (ii) the Company is unable to locate a qualified successor, (b) the Company, at its option, advises the Trustee in writing that it elects to terminate the book-entry system through the Clearing Agency or (c) after the occurrence of a Servicer Default, Certificate Book-Entry Holders representing Fractional Undivided Interests aggregating more than 50% of the Invested Amount held by such Certificate Book-Entry Holders of each affected Series then issued and outstanding advise the Clearing Agency through the Clearing Agency Participants in writing, and the Clearing Agency shall so notify the Trustee, that the continuation of a book-entry system through the Clearing Agency is no longer in the best interests of the Certificate Book-Entry Holders, the Trustee shall notify the Clearing Agency, which shall be responsible to notify the Certificate Book-Entry Holders, of the occurrence of any such event and of the availability of Definitive Certificates to Certificate Book-Entry Holders requesting the same. Upon surrender to the Trustee of the Book-Entry Certificates by the Clearing Agency, accompanied by registration instructions from the Clearing Agency for registration, the Trustee shall issue the Definitive Certificates. Neither the Company nor the Trustee shall be liable for any 56 delay in delivery of such instructions and may conclusively rely on, and shall be protected in relying on, such instructions. VI OTHER MATTERS RELATING TO THE COMPANY VI.1. LIABILITY OF THE COMPANY. The Company shall be liable for all obligations, covenants, representations and warranties of the Company arising under or related to this Agreement or any Supplement. Except as provided in the preceding sentence and otherwise herein, the Company shall be liable only to the extent of the obligations specifically undertaken by it hereunder. VI.2. LIMITATION ON LIABILITY OF THE COMPANY. Except as provided in Sections 6.1 and 6.3 or otherwise provided herein, neither the Company nor any of its directors or officers or employees or agents, in their capacity as transferor of, or in connection with the transfer of, Receivables and Related Property hereunder, shall be under any liability to the Trust, the Trustee, the Certificateholders or any other Person for any action taken or for refraining from the taking of any action pursuant to this Agreement, whether or not such action or inaction arises from express or implied duties under this Agreement; PROVIDED, HOWEVER, that this provision shall not protect the Company against any liability which would otherwise be imposed by reason of wilful misconduct, bad faith or negligence in the performance of any duties or by reason of reckless disregard of any obligations and duties hereunder; PROVIDED, FURTHER, that this provision shall not protect any such director, officer, employee or agent against any liability which would otherwise be imposed on such Person by reason of wilful misconduct, bad faith or gross negligence in the performance of such Person's duties or by reason of reckless disregard of such Person's obligations and duties hereunder. The Company and any director or officer or employee or agent of the Company may rely in good faith on any document of any kind PRIMA FACIE properly executed and submitted by any Person (other than, in the case of the Company, the Company or the Servicer) respecting any matters arising hereunder. VI.3. LIABILITIES. By entering into this Agreement, the Company agrees to be liable, directly to the injured party, for the entire amount of any losses, claims, damages or liabilities, arising out of or based on the arrangement created by any Pooling and Servicing Agreement or the actions of the Servicer taken pursuant hereto or thereto as though the Pooling and Servicing Agreements created a partnership under the New York Uniform Limited Partnership Act with the Company as a general partner thereof (except those losses, claims, damages or liabilities incurred by an Investor Certificateholder in the capacity of an investor in the Investor Certificates as a result of the performance of the Receivables, market fluctuations or other similar market or investment risks). The Company agrees to pay, indemnify and hold harmless each Investor Certificateholder against and from any and all such losses, claims, damages and liabilities, except to the extent they arise from any action by such Investor Certificateholder. In the event of a Service Transfer, the Successor Servicer (except for the Trustee in its capacity as Successor Servicer) will indemnify and hold harmless the Company for any losses, claims, 57 damages and liabilities of the Company arising under this Section 6.3 from the actions or omissions of such Successor Servicer. VII EARLY AMORTIZATION EVENTS VII.1. EARLY AMORTIZATION EVENTS. Unless modified with respect to any Series of Investor Certificates by any related Supplement, if any one of the following events (each, an "EARLY AMORTIZATION EVENT") shall occur: (a) (i) the Company shall commence any case, proceeding or other action (A) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts, or (B) seeking appointment of a receiver, trustee, custodian or other similar official for it or for all or any substantial part of its assets, or the Company shall make a general assignment for the benefit of its creditors; or (ii) there shall be commenced against the Company any case, proceeding or other action of a nature referred to in clause (i) above which (A) results in the entry of an order for relief or any such adjudication or appointment or (B) remains undismissed, undischarged or unbonded for a period of 60 days; or (iii) there shall be commenced against the Company any case, proceeding or other action seeking issuance of a warrant of attachment, execution, distraint or similar process against all or any substantial part of its assets which results in the entry of an order for any such relief which shall not have been vacated, discharged, or stayed or bonded pending appeal within 60 such days from the entry thereof; or (iv) the Company shall take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth in clause (i), (ii), or (iii) above; or (v) the Company shall generally not, or shall be unable to, or shall admit in writing its inability to, pay its debts as they become due; (b) the Trust or the Company shall become an "investment company" within the meaning of the Investment Company Act of 1940, as amended; (c) the Trust is characterized for federal income tax purposes as a "publicly traded partnership" or as an association taxable as a corporation; or (d) the Trustee shall be appointed as Successor Servicer pursuant to subsection 6.2(b) of the Servicing Agreement; then, an "EARLY AMORTIZATION PERIOD" with respect to all Outstanding Series shall commence without any notice or other action on the part of the Trustee or any Investor Certificateholder immediately upon the occurrence of such event. The Servicer shall notify each Rating Agency 58 and the Trustee in writing of the occurrence of any Early Amortization Period, specifying the cause thereof. Further, upon the commencement against the Company of a case, proceeding or other action described in clause (a)(ii) or (iii) above, the Company shall not purchase Receivables from any Seller, or transfer Receivables to the Trust, until such time, if any, as such case, proceeding or other action is vacated, discharged, or stayed or bonded pending appeal. Additional Early Amortization Events and the consequences thereof may be set forth in each Supplement with respect to the Series relating thereto. VII.2. ADDITIONAL RIGHTS UPON THE OCCURRENCE OF CERTAIN EVENTS. (a) If an Insolvency Event with respect to the Company occurs, the Company shall immediately cease to transfer Receivables to the Trust and shall promptly give notice to the Trustee of such occurrence. Notwithstanding any cessation of the transfer to the Trust of additional Receivables, Receivables transferred to the Trust prior to the occurrence of such Insolvency Event and Collections in respect of such Receivables and interest, whenever created, accrued in respect of such Receivables, shall continue to be a part of the Trust. Within 15 days of the Trustee's receipt of notice of the occurrence of an Insolvency Event in accordance with Section 7.1, if the Aggregate Invested Amount and all accrued and unpaid interest thereon have not been paid to the Investor Certificateholders, then the Trustee shall (i) publish a notice in a newspaper with a national circulation (an "AUTHORIZED NEWSPAPER") that an Insolvency Event has occurred and that the Trustee intends to sell, dispose of or otherwise liquidate the Receivables and the other Trust Assets in a commercially reasonable manner and (ii) send written notice to the Investor Certificateholders and request instructions from such holders, which notice shall request each Investor Certificateholder to advise the Trustee in writing that it elects one of the following options: (A) the Investor Certificateholder wishes the Trustee to instruct the Servicer not to sell, dispose of or otherwise liquidate the Receivables and the other Trust Assets, or (B) the Investor Certificateholder wishes the Trustee to instruct the Servicer to sell, dispose of or otherwise liquidate the Receivables and the other Trust Assets and to instruct the Servicer to reconstitute the Trust upon the same terms and conditions set forth herein, or (C) the Investor Certificateholder refuses to advise the Trustee as to the specific action the Trustee shall instruct the Servicer to take. If after 60 days from the day notice pursuant to clause (i) above is first published (the "PUBLICATION DATE"), the Trustee shall not have received written instructions of (x) holders of Certificates representing undivided interests in the Trust aggregating in excess of 50% of the related Invested Amount of each Series (or in the case of a series having more than one Class of Investor Certificates, each Class of such series) selecting option (A) above and (y) if the holders of the Exchangeable Company Certificate do not include the Company (and following the delivery of written notice in the form referred to above by the Company to such holders), the holders of such Certificate representing undivided interests in the Trust aggregating in excess of 50% of the Company Interest, the Trustee shall instruct the Servicer to proceed to sell, dispose of, or otherwise liquidate the Receivables and the other Trust Assets in a commercially reasonable manner and on commercially reasonable terms, which shall include the solicitation of competitive bids, and the Servicer shall proceed to consummate the sale, liquidation or disposition of the Receivables and the other Trust Assets as provided above with the highest bidder therefor; PROVIDED, HOWEVER, that if the allocable sale price, less all reasonable fees, expenses and other amounts due hereunder to the Trustee, its agents and counsel to the Trustee, to be realized from 59 such sale, liquidation or disposition would be less than the Aggregate Invested Amount plus accrued and unpaid interest thereon through the Distribution Date next succeeding the date of such sale, the Trustee must receive the prior unanimous consent of all the Investor Certificateholders to such sale, liquidation or disposition. The Company or any of its Affiliates shall be permitted to bid for the Receivables and the other Trust Assets. In addition, the Company or any of its Affiliates shall have the right to match any bid by a third person and be granted the right to purchase the Receivables and the other Trust Assets at such matched bid price. The Trustee may obtain a prior determination from any such conservator, receiver or liquidator that the terms and manner of any proposed sale, disposition or liquidation are commercially reasonable. The provisions of Sections 7.1 and 7.2 shall be cumulative. The costs and expenses incurred by the Trustee in such sale shall be reimbursable to the Trustee as provided in Section 8.5. (a) The proceeds from the sale, liquidation or disposition of the Receivables and the other Trust Assets pursuant to subsection (a) above shall be treated as Collections on the Receivables and such proceeds will be distributed to holders of each Series after immediately being deposited in the Collection Account, in accordance with the provisions of subsection 3.1(d) and the related Supplement for such Series. After giving effect to all such deposits, the remaining funds, if any, shall be (i) paid to the Trustee in an amount equal to the amount of any expenses incurred by the Trustee acting in its capacity either as Trustee or as liquidating agent pursuant to subsection 7.2(a) above which have not otherwise been reimbursed prior thereto and (ii) after giving effect to the transfer to be made pursuant to the preceding clause (i), if applicable, the remainder, if any, shall be allocated to the Company Interest and shall be released to the holder of the Exchangeable Company Certificate upon surrender thereof. VIII THE TRUSTEE VIII.1. DUTIES OF TRUSTEE. (a) The Trustee, prior to the occurrence of a Servicer Default or Early Amortization Event of which a Responsible Officer of the Trustee has actual knowledge and after the curing of all Servicer Defaults and Early Amortization Events which may have occurred, undertakes to perform such duties and only such duties as are specifically set forth in the Pooling and Servicing Agreements or any Supplement and no implied covenants or obligations shall be read into such Pooling and Servicing Agreements against the Trustee. If a Servicer Default or Early Amortization Event to the actual knowledge of a Responsible Officer of the Trustee has occurred (which has not been cured or waived), the Trustee shall exercise the rights and powers vested in it in its capacity as Trustee by any Pooling and Servicing Agreement and any Supplement and shall use the same degree of care and skill in their exercise as a prudent person would exercise or use under the circumstances in the conduct of such person's own affairs. The provisions of this Section shall be applicable to the Trustee in its capacity as Trustee hereunder. If the Trustee shall have succeeded to the obligations of the Servicer, the provisions of the Servicing Agreement shall govern the actions of the Trustee as Successor Servicer. 60 (a) The Trustee may conclusively rely as to the truth of the statements and the correctness of the opinions expressed therein upon resolutions, certificates, statements, opinions, reports, documents, orders or other instruments furnished to the Trustee and believed by it to be genuine and to have been signed or presented to it pursuant to any Pooling and Servicing Agreement by the proper party or parties; but in the case of any of the above which are specifically required to be furnished to the Trustee pursuant to any provision of the Pooling and Servicing Agreements, the Trustee shall, subject to Section 8.2, examine them to determine whether they substantially conform to the requirements of this Agreement. (b) Subject to subsection 8.1(a), no provision of this Agreement or any Supplement shall be construed to relieve the Trustee from liability for its own negligent action, its own negligent failure to act or its own misconduct; PROVIDED, HOWEVER, that: (i) The Trustee shall not be liable for an error of judgment unless it shall be proved that the Trustee was negligent, or acted in bad faith, in ascertaining the pertinent facts; (ii) The Trustee shall not be liable with respect to any action taken, suffered or omitted to be taken by it in good faith in accordance with the direction of the Servicer or the holders of Investor Certificates evidencing at least 50% (or such lesser percentage as set forth in any applicable provision) of the Aggregate Invested Amount; (iii) The Trustee shall not be charged with knowledge of any failure by the Servicer to comply with any of its obligations, unless a Responsible Officer of the Trustee obtains actual knowledge of such failure or the Trustee receives written notice of such failure from the Servicer, any Agent or any Investor Certificateholder; (iv) The Trustee shall not be charged with knowledge of a Servicer Default or Early Amortization Event unless a Responsible Officer obtains actual knowledge of such event or the Trustee receives written notice of such default or event from the Servicer, any Agent or any Investor Certificateholder; (v) The Trustee shall not be liable for any investment losses resulting from any investments of funds on deposit in the Accounts or any subaccounts thereof; and (vi) The Trustee shall have no duty to monitor the performance of the Servicer, nor shall it have any liability in connection with malfeasance or nonfeasance by the Servicer. The Trustee shall have no liability in connection with compliance of the Servicer or the Company with statutory or regulatory requirements related to the Receivables. (c) The Trustee shall not be required to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties under any Pooling and Servicing Agreement or in the exercise of any of its rights or powers, if there is reasonable ground for believing that the repayment of such funds or adequate indemnity against such risk or liability is 61 not reasonably assured to it, and none of the provisions contained in any Pooling and Servicing Agreement shall in any event require the Trustee to perform, or be responsible for the manner of performance of, any obligations of the Servicer under such Agreement except during such time, if any, as the Trustee shall be the successor to, and be vested with the rights, duties, powers and privileges of, the Servicer in accordance with the terms of such Agreement. (d) Except as expressly provided in any Pooling and Servicing Agreement, the Trustee shall have no power to vary the corpus of the Trust. (e) Provided that the Servicer and the Company shall have provided to the Trustee promptly upon request all books, records and other information reasonably requested by the Trustee and shall have provided the Trustee with all necessary access to the properties, books and records of the Servicer and the Company which the Trustee may reasonably require, then within 60 days following the Initial Closing Date, the Trustee shall have (i) completed the Servicer Site Review and (ii) established the Standby Liquidation System, and shall have notified the Servicer, each Rating Agency and each Investor Certificateholder of such events. (f) The Trustee shall deliver the Internal Operating Procedures Memorandum to the Company and the Servicer as promptly as practicable and in any event no later than 45 days after the Initial Closing Date. From and after the date of such delivery, the Trustee shall take such actions as are set forth in the Internal Operating Procedures Memorandum unless prevented from doing so through no fault of the Trustee. VIII.2. RIGHTS OF THE TRUSTEE. Except as otherwise provided in Section 8.1: (a) The Trustee may conclusively rely on and shall be protected in acting on, or in refraining from acting in accord with, any resolution, Officer's Certificate, certificate of auditors or any other certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, appraisal, bond, note or other paper or document believed by it to be genuine and to have been signed or presented to it pursuant to any Pooling and Servicing Agreement by the proper party or parties; (b) The Trustee may consult with counsel (at the Company's expense) and any Opinion of Counsel or any advice of such counsel shall be full and complete authorization and protection in respect of any action taken or suffered or omitted by it hereunder in good faith and in accordance with such Opinion of Counsel; (c) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by any Pooling and Servicing Agreement, or to institute, conduct or defend any litigation hereunder or in relation hereto, at the request, order or direction of any of the Certificateholders, pursuant to the provisions of any Pooling and Servicing Agreement, unless such Certificateholders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which may be incurred therein or thereby; PROVIDED, HOWEVER, that nothing contained herein shall relieve the Trustee of the obligations, upon the occurrence of a Servicer Default or Early 62 Amortization Event (which has not been cured), to exercise such of the rights and powers vested in it by any Pooling and Servicing Agreement, and to use the same degree of care and skill in their exercise as a prudent person would exercise or use under the circumstances in the conduct of such person's own affairs. The right of the Trustee to perform any discretionary act enumerated in this Agreement shall not be construed as a duty, and the Trustee shall not be answerable for other than its negligence or wilful misconduct in the performance of any such act; (d) The Trustee shall not be personally liable for any action taken, suffered or omitted by it in good faith and believed by it to be authorized or within the discretion or rights or powers conferred upon it by any Pooling and Servicing Agreement; PROVIDED that the Trustee shall be liable for its negligence or willful misconduct; (e) The Trustee shall not be bound to make any investigation into the facts of matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, direction, order, approval, bond, note or other paper or document, or to recompute the amount of any allocations or distributions contained in any direction from the Servicer provided for under the Agreement, unless requested in writing so to do by the holders of Investor Certificates evidencing Fractional Undivided Interests aggregating more than 50% of the Invested Amount of any Series which could be adversely affected if the Trustee does not perform such acts; PROVIDED, HOWEVER, that such holders of Investor Certificates shall reimburse the Trustee for any expense resulting from any such investigation requested by them; PROVIDED, FURTHER, that the Trustee shall be entitled to make such further inquiry or investigation into such facts or matters as it may reasonably see fit, and if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books and records of the Company, personally or by agent or attorney, at the sole cost and expense of the Company; (f) The Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through affiliates, agents or attorneys or a custodian or nominee, and the Trustee shall not be responsible for any misconduct or negligence on the part of, or for the supervision of, any such affiliate, agent, attorney, custodian or nominee appointed with due care by it hereunder; (g) The Trustee shall not be required to make any initial or periodic examination of any documents or records related to the Receivables or the Accounts for the purpose of establishing the presence or absence of defects, the compliance by the Company with its representations and warranties or for any other purpose; and (h) In the event that the Trustee is also acting as Paying Agent or Transfer Agent and Registrar hereunder, the rights and protections afforded to the Trustee pursuant to this Article VIII shall also be afforded to such Paying Agent or Transfer Agent and Registrar. 63 VIII.3. TRUSTEE NOT LIABLE FOR RECITALS IN CERTIFICATES. The Trustee assumes no responsibility for the correctness of the recitals contained herein and in the Certificates (other than the certificate of authentication on the Certificates). Except as set forth in Section 8.15, the Trustee makes no representations as to the validity or sufficiency of any Pooling and Servicing Agreement or of the Certificates (other than the certificate of authentication on the Certificates) or of any Receivable or related document. The Trustee shall not be accountable for the use or application by the Company of any of the Certificates or of the proceeds of such Certificates, or for the use or application of any funds paid to the Company in respect of the Receivables or deposited in or withdrawn from the Accounts or other accounts hereafter established to effectuate the transactions contemplated herein and in accordance with the terms of any Pooling and Servicing Agreement. The Trustee shall not be accountable for the use or application by the Servicer of any of the Certificates or of the proceeds of such Certificates, or for the use or application of any funds paid to the Servicer or any Sub-Servicer in respect of the Receivables or deposited in or withdrawn from the Accounts or any Lockbox by or at the direction of the Servicer, any Sub-Servicer or the Lockbox Processor, in each case unless the Trustee, acting in its capacity as Successor Servicer, itself makes such use or application. The Trustee shall at no time have any responsibility or liability for or with respect to the legality, validity and enforceability of any Receivable. VIII.4. TRUSTEE MAY OWN CERTIFICATES. The Trustee in its individual or any other capacity (a) may become the owner or pledgee of Investor Certificates with the same rights as it would have if it were not the Trustee and (b) may transact any banking and trust business with the Company, the Servicer, any Sub-Servicer or any Seller as it would were it not the Trustee. VIII.5. TRUSTEE'S FEES AND EXPENSES. The Servicer covenants and agrees to pay, but only from funds available to it as the Servicing Fee paid under the Servicing Agreement, to the Trustee an annual fee agreed upon in writing between the Servicer and the Trustee, payable in advance on the Initial Closing Date and on each one-year anniversary thereof. The Trustee also shall be entitled to reimbursement from the Servicer or the Company upon the Trustee's request for all reasonable expenses (including, without limitation, expenses incurred in connection with notices, requests for documentation or other communications to or directions from Certificateholders), disbursements, losses, liabilities, damages and advances incurred or made by the Trustee in accordance with any of the provisions of any Pooling and Servicing Agreement or by reason of its status as Trustee under any Pooling and Servicing Agreement (including the reasonable fees and expenses of its agents, any co-trustee and counsel) except any such expense, disbursement, loss, liability, damage or advance as may arise from its negligence or bad faith or willful misconduct; PROVIDED that any payments made by the Company in respect of any of the foregoing items shall be made solely from funds available to the Company which are not otherwise needed to be applied to the payment of any amounts pursuant to any Pooling and Servicing Agreements, shall be non-recourse other than with respect to proceeds in excess of the proceeds necessary to make such payment, and shall not constitute a claim against the Company to the extent that insufficient proceeds exist to make such payment. To the extent that the Trustee has not been paid for any of the foregoing items (including pursuant to the first sentence 64 of this Section 8.5), the Trustee shall be entitled to be paid for such items from amounts which otherwise would be distributable to the Company under Article III of this Agreement. The Trustee shall be entitled to reimbursement for any reasonable out-of-pocket costs or expenses incurred in connection with the review, negotiation, preparation, execution and delivery of any of the Transaction Documents or in connection with the issuance of any Certificates on the Initial Closing Date. If the Trustee is appointed Successor Servicer in accordance with the Servicing Agreement, the Trustee, in its capacity as Successor Servicer, shall also be entitled to be paid the Servicing Fee. The provisions of this Section 8.5 shall apply to the reasonable expenses, disbursements and advances made or incurred by the Trustee, or any other Person, in its capacity as liquidating agent, to the extent not otherwise paid. The covenants and agreements contained in this Section 8.5 (including, without limitation, the covenants to pay the expenses, disbursements, losses, liabilities, damages and advances provided for in this Section 8.5) shall survive the termination of any Pooling and Servicing Agreement and shall be binding, as applicable, on (i) the Servicer and any Successor Servicer and (ii) the Company. VIII.6. ELIGIBILITY REQUIREMENTS FOR TRUSTEE. The Trustee hereunder shall at all times be a corporation organized and doing business under the laws of the United States of America or any state thereof and authorized under such laws to exercise corporate trust powers, having (or having a holding company parent with) a combined capital and surplus of at least $50,000,000 and subject to supervision or examination by Federal or State authority. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of the aforesaid supervising or examining authority, then, for the purpose of this Section 8.6, the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. In case at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section 8.6, the Trustee shall resign immediately in the manner and with the effect specified in Section 8.7. VIII.7. RESIGNATION OR REMOVAL OF TRUSTEE. (a) Subject to paragraph (c) below, the Trustee may at any time resign and be discharged from the trust hereby created by giving written notice thereof to the Company, the Servicer and the Rating Agencies. Upon receiving such notice of resignation, the Company shall promptly appoint a successor trustee by written instrument, in duplicate, one copy of which instrument shall be delivered to the resigning Trustee and one copy to the successor trustee. If no successor trustee shall have been so appointed and have accepted appointment within 30 days after the giving of such notice of resignation, the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor trustee. (a) If at any time the Trustee shall cease to be eligible in accordance with the provisions of Section 8.6 hereof and shall fail to resign after written request therefor by the Servicer, or if at any time the Trustee shall be legally unable to act, or shall be adjudged a bankrupt or insolvent, or if a receiver of the Trustee or of its property shall be appointed, or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, then the Company may remove the Trustee 65 and promptly appoint a successor trustee by written instrument, in duplicate, one copy of which instrument shall be delivered to the Trustee so removed and one copy to the successor trustee. (b) Any resignation or removal of the Trustee and appointment of a successor trustee pursuant to any of the provisions of this Section 8.7 shall not become effective until acceptance of appointment by the successor trustee as provided in Section 8.8. (c) The obligations of the Company described in Sections 6.3 and 8.5 hereof and the obligations of the Servicer described in Section 8.5 hereof and Section 5.1 of the Servicing Agreement shall survive the removal or resignation of the Trustee as provided in this Agreement. (d) No Trustee under this Agreement shall be personally liable for any action or omission of any successor trustee. VIII.8. SUCCESSOR TRUSTEE. (a) Any successor trustee appointed as provided in Section 8.7 shall execute, acknowledge and deliver to the Company and to its predecessor Trustee an instrument accepting such appointment hereunder, and thereupon the resignation or removal of the predecessor Trustee shall become effective and such successor trustee, without any further act, deed or conveyance, shall become fully vested with all the rights, powers, duties and obligations of its predecessor hereunder, with like effect as if originally named as Trustee herein. The predecessor Trustee shall deliver to the successor trustee all documents or copies thereof, at the expense of the Servicer, and statements held by it hereunder; and the Company and the predecessor Trustee shall execute and deliver such instruments and do such other things as may reasonably be required for fully and certainly vesting and confirming in the successor trustee all such rights, power, duties and obligations. The Servicer shall immediately and, in any event, no less than ten days prior to any such resignation or removal, give notice to each Rating Agency upon the appointment of a successor trustee. (a) No successor trustee shall accept appointment as provided in this Section 8.8 unless at the time of such acceptance such successor trustee shall be eligible under the provisions of Section 8.6. (b) Upon acceptance of appointment by a successor trustee as provided in this Section 8.8, such successor trustee shall mail notice of such succession hereunder to all Certificateholders at their addresses as shown in the Certificate Register. VIII.9. MERGER OR CONSOLIDATION OF TRUSTEE. Any Person into which the Trustee may be merged or converted or with which it may be consolidated, or any Person resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any Person succeeding to the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder, provided such corporation shall be eligible under the provisions of Section 8.6, without the execution or filing of any paper or any further act on the part of any of the parties hereto, anything herein to the contrary notwithstanding. The Trustee shall promptly give notice (except to the extent prohibited under any Requirement of Law or Contractual Obligation), but in 66 no event less than ten days prior to any such merger or consolidation, to the Company, the Servicer and the Rating Agencies upon any such merger or consolidation of the Trustee. VIII.10. APPOINTMENT OF CO-TRUSTEE OR SEPARATE TRUSTEE. (a) Notwithstanding any other provisions of any Pooling and Servicing Agreement, at any time, for the purpose of meeting any legal requirements of any jurisdiction in which any part of the Trust may at the time be located, the Trustee shall have the power and may execute and deliver all instruments to appoint one or more persons to act as a co-trustee or co-trustees, or separate trustee or separate trustees, of all or any part of the Trust, and to vest in such Person or Persons, in such capacity and for the benefit of the Certificateholders, such title to the Trust, or any part thereof, and, subject to the other provisions of this Section 8.10, such powers, duties, obligations, rights and trusts as the Trustee may consider necessary or desirable. No co-trustee or separate trustee hereunder shall be required to meet the terms of eligibility as a successor trustee under Section 8.6 and no notice to Certificateholders of the appointment of any co-trustee or separate trustee shall be required under Section 8.8. The Trustee shall promptly notify each Rating Agency of the appointment of any co- trustee. (a) Every separate trustee and co-trustee shall, to the extent permitted by law, be appointed and act subject to the following provisions and conditions: (i) all rights, powers, duties and obligations conferred or imposed upon the Trustee shall be conferred or imposed upon and exercised or performed by the Trustee and such separate trustee or co-trustee jointly (it being understood that such separate trustee or co-trustee is not authorized to act separately without the Trustee joining in such act), except to the extent that under any statute of any jurisdiction in which any particular act or acts are to be performed (whether as Trustee hereunder or as successor to the Servicer hereunder), the Trustee shall be incompetent or unqualified to perform such act or acts, in which event such rights, powers, duties and obligations (including the holding of title to the Trust or any portion thereof in any such jurisdiction) shall be exercised and performed singly by such separate trustee or co-trustee, but solely at the direction of the Trustee; (ii) no trustee hereunder shall be personally liable by reason of any act or omission of any other trustee hereunder; and (iii) the Trustee may at any time accept the resignation of or remove any separate trustee or co-trustee. (b) Any notice, request or other writing given to the Trustee shall be deemed to have been given to each of the then separate trustees and co-trustees, as effectively as if given to each of them. Every instrument appointing any separate trustee or co-trustee shall refer to this Agreement and the conditions of this Article VIII. Each separate trustee and co-trustee, upon its acceptance of the trusts conferred, shall be vested with the estates or property specified in its instrument of appointment, either jointly with the Trustee or separately, as may be provided therein, subject to all the provisions of any Pooling and Servicing Agreement, specifically 67 including every provision of any Pooling and Servicing Agreement relating to the conduct of, affecting the liability of, or affording protection to, the Trustee. Every such instrument shall be filed with the Trustee and a copy thereof given to the Servicer and the Company. (c) Any separate trustee or co-trustee may at any time constitute the Trustee, its agent or attorney-in-fact with full power and authority, to the extent not prohibited by law, to do any lawful act under or in respect to any Pooling and Servicing Agreement on its behalf and in its name. If any separate trustee or co-trustee shall die, become incapable of acting, resign or be removed, all of its estates, properties, rights, remedies and trusts shall vest in and be exercised by the Trustee, to the extent permitted by law, without the appointment of a new or successor trustee. VIII.11. TAX RETURNS. In the event the Trust shall be required to file tax returns, the Company shall prepare and file or shall cause to be prepared and filed (including, without limitation, by the Servicer) any tax returns required to be filed by the Trust and shall remit such returns to the Trustee for signature at least five Business Days before such returns are due to be filed. The Trustee is hereby authorized to sign any such return on behalf of the Trust. The Company shall also prepare or shall cause to be prepared (including, without limitation, by the Servicer) all tax information required by law to be distributed to Certificateholders and shall deliver such information to the Trustee at least five Business Days prior to the date it is required by law to be distributed to the Certificateholders. The Trustee, upon written request, will furnish the Company, or the Company's designee, with all such information known to the Trustee as may be reasonably required in connection with the preparation of all tax returns of the Trust, and shall, upon request, execute such returns. In no event shall the Trustee in its individual capacity be liable for any liabilities, costs or expenses of the Trust, the Certificateholders, the Company or the Servicer arising under any tax law or regulation, including, without limitation, federal, state or local income or excise taxes or any other tax imposed on or measured by income (or any interest or penalty with respect thereto or arising from any failure to comply therewith). VIII.12. TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF CERTIFICATES. All rights of action and claims under any Pooling and Servicing Agreement or the Certificates may be prosecuted and enforced by the Trustee without the possession of any of the Certificates or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name as trustee. Any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, be for the ratable benefit of the Certificateholders in respect of which such judgment has been obtained. VIII.13. SUITS FOR ENFORCEMENT. If a Servicer Default shall occur and be continuing, the Trustee may, as provided in Section 6.1 of the Servicing Agreement, proceed to protect and enforce its rights and the rights of the Certificateholders under this Agreement or any other Transaction Document by suit, action or proceeding in equity or at law or otherwise, whether for the specific performance of any covenant or agreement contained in this Agreement or any other Transaction Document or in aid of the execution of any power granted in this Agreement or any other Transaction Document or for the enforcement of any other legal, 68 equitable or other remedy as the Trustee, being advised by counsel, shall deem most effectual to protect and enforce any of the rights of the Trustee or the Certificateholders. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Certificateholder any plan of reorganization, arrangement, adjustment or composition affecting the Certificates or the rights of any holder thereof, or authorize the Trustee to vote in respect of the claim of any Certificateholder in any such proceeding. VIII.14. RIGHTS OF INVESTOR CERTIFICATEHOLDERS TO DIRECT TRUSTEE. Investor Certificateholders evidencing more than 50% of the Invested Amount of any Series affected by the conduct of any proceeding or the exercise of any right conferred on the Trustee shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred on the Trustee; PROVIDED, HOWEVER, that, subject to Section 8.1, the Trustee shall have the right to decline to follow any such direction if the Trustee being advised by counsel determines that the action so directed may not lawfully be taken, or if the Trustee in good faith shall, by a Responsible Officer or Responsible Officers of the Trustee, determine that the proceedings so directed would be illegal or expose it to personal liability or be unduly prejudicial to the rights of Investor Certificateholders not party to such direction; and PROVIDED, FURTHER, that nothing in any Pooling and Servicing Agreement shall impair the right of the Trustee to take any action deemed proper by the Trustee and which is not inconsistent with such direction of the Investor Certificateholders. VIII.15. REPRESENTATIONS AND WARRANTIES OF TRUSTEE. The Trustee represents and warrants that: (a) the Trustee is a banking corporation organized, existing and in good standing under the laws of the United States or any of its fifty states and is duly authorized and empowered to exercise trust powers under applicable law; (b) the Trustee has the power and authority to enter into this Agreement and any Supplement, and has taken all necessary action to authorize the execution, delivery and performance by it of this Agreement and any Supplement; and (c) each Pooling and Servicing Agreement and each of the Transaction Documents executed by it have been duly executed and delivered by the Trustee and, in the case of all such Transaction Documents, are legal, valid and binding obligations of the Trustee, enforceable in accordance with their respective terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect affecting the enforcement of creditors' rights generally and except as such enforceability may be limited by general principles of equity (whether considered in a suit at law or in equity). VIII.16. MAINTENANCE OF OFFICE OR AGENCY. The Trustee will maintain at its expense in the Borough of Manhattan, The City of New York, an office or offices or agency or agencies where notices and demands to or upon the Trustee in respect of the Certificates and the Pooling and Servicing Agreements may be served. The Trustee will give prompt written notice to 69 the Company, the Servicer and the Certificateholders of any change in the location of the Certificate Register or any such office or agency. VIII.17. LIMITATION OF LIABILITY. The Certificates are executed by the Trustee, not in its individual capacity but solely as Trustee of the Trust, in the exercise of the powers and authority conferred and vested in it by this Agreement. Each of the undertaking and agreements made on the part of the Trustee in the Certificates is made and intended not as a personal undertaking or agreement by the Trustee but is made and intended for the purpose of binding only the Trust. IX TERMINATION IX.1. TERMINATION OF TRUST; LIQUIDATION OF RECEIVABLES. (a) The Trust and the respective obligations and responsibilities of the Company, the Servicer, the Sub-Servicers and the Trustee created hereby (other than the obligation of the Trustee to make payments to Certificateholders as hereafter set forth) shall terminate, except with respect to any such obligations or responsibilities expressly stated to survive such termination, on the earliest of (i) September 1, 2014, (ii) at the option of the Company, at any time where the Aggregate Invested Amount is zero (unless an Early Amortization Event as specified in Section 7.1 of this Agreement shall have occurred and be continuing, in which case the Company shall be deemed to elect to terminate the Trust pursuant to this clause (ii)) and (iii) upon completion of distribution of the amounts referred to in subsection 7.2(b) (the "TRUST TERMINATION DATE"). (a) If on the Distribution Date in the month immediately preceding the month in which the Trust Termination Date occurs (after giving effect to all transfers, withdrawals, deposits and drawings to occur on such date and the payment of principal on any Series of Certificates to be made on the related Distribution Date pursuant to Article III) the Invested Amount of any Series would be greater than zero, the Trustee, at the written direction of the Servicer, shall sell within 30 days of such Distribution Date all of the Receivables and other Trust Assets. The proceeds of such sale shall be treated as Collections on the Receivables and shall be allocated in accordance with Article III. During such 30-day period, the Servicer shall continue to collect Collections on the Receivables and allocate Collections in accordance with the provisions of Article III. The costs and expenses incurred by the Trustee in such sale shall be reimbursable to the Trustee as provided in Section 8.5. IX.2. CLEAN-UP CALL AND FINAL TERMINATION DATE OF INVESTOR CERTIFICATES OF ANY SERIES. (a) On the Distribution Date during the Amortization Period with respect to any Series on which the Invested Amount (or such other amount as may be set forth in the related Supplement) of such Series is reduced to an amount equal to or less than the Clean-Up Call Percentage of the Invested Amount for such Series as of the day preceding the beginning of such Amortization Period (or such other amount as may be set forth in the related Supplement), the Company shall have the option to repurchase, and to the extent set forth in the related 70 Supplement, shall repurchase, the entire Certificateholders' Interest of such Series, at a purchase price equal to (i) the outstanding Invested Amount of the Investor Certificates of such Series PLUS (ii) accrued and unpaid interest through the date of such purchase (after giving effect to any payment of principal and monthly interest on such date of purchase) PLUS (iii) all other amounts payable to all Investor Certificateholders of such Series under the related Supplement (such purchase price, the "CLEAN-UP CALL REPURCHASE PRICE"). The amount of the Clean-Up Call Repurchase Price will be deposited into the Collection Account for credit to the Series Collection Subaccount for such Series on the Business Day prior to such Distribution Date in immediately available funds and will be passed through in full to the applicable Investor Certificateholders. Following any such repurchase, such Certificateholders' Interest in the Trust Assets shall terminate and such interest therein will be allocated to the Company Interest and such Certificateholders will have no further rights with respect thereto. In the event that the Company fails for any reason to deposit the Clean-Up Call Repurchase Price for such Receivables, the Certificateholders' Interest in the Receivables and the other Trust Assets will continue and monthly payments will continue to be made to the Certificateholders. (a) The amount deposited pursuant to subsection 9.2(a) shall be paid to the Investor Certificateholders of the related Series pursuant to Article III on the Distribution Date following the date of such deposit. All Certificates of a Series which are purchased by the Company pursuant to subsection 9.2(a) shall be delivered by the Company upon such purchase to, and be canceled by (in accordance with the written directions of the Company), the Transfer Agent and Registrar and be disposed of in a manner satisfactory to the Trustee and the Company. (b) All principal or interest with respect to any Series of Investor Certificates shall be due and payable no later than the Series Termination Date with respect to such Series. Unless otherwise provided in a Supplement, in the event that the Invested Amount of any Series of Certificates is greater than zero on its Series Termination Date (after giving effect to all transfers, withdrawals, deposits and drawings to occur on such date and the payment of principal to be made on such Series on such date), the Trustee will sell or cause to be sold, in accordance with the directions of Investor Certificateholders representing more than 50% of the Invested Amount of such Series, and pay the proceeds to all Certificateholders of such Series PRO RATA (except that unless expressly provided to the contrary in the related Supplement, no payment shall be made to Certificateholders of any Class of any Series that is by its terms subordinated to any other Class until such senior Class of Certificates has been paid in full) in final payment of all principal of and accrued interest on such Series of Certificates, an amount of Receivables or interests in Receivables up to the Invested Amount of such Series at the close of business on such date. Absent such direction from Investor Certificateholders representing more than 50% of the Invested Amount of such Series, the Trustee shall continue to hold the Trust Assets in respect of such Series in accordance with the terms of the Pooling and Servicing Agreements until the Trust Termination Date (or until Investor Certificateholders representing more than 50% of the Invested Amount of such Series shall otherwise direct the Trustee); PROVIDED that the terms of this Agreement, the related Supplement and the Servicing Agreement shall be deemed to remain in full force and effect, except that no additional Receivables shall be allocated with respect to such Series. The reasonable costs and expenses incurred by the Trustee in such sale shall be reimbursable to the Trustee as provided in Section 8.5. Any proceeds of such sale in excess 71 of such principal and interest paid shall be paid to the holder of the Exchangeable Company Certificate, unless and to the extent otherwise specified in any applicable Supplement. Upon such Series Termination Date with respect to the applicable Series of Certificates, final payment of all amounts allocable to any Investor Certificates of such Series shall be made in the manner provided in this Section 9.2. IX.3. FINAL PAYMENT WITH RESPECT TO ANY SERIES. (a) Written notice of any termination, specifying the Distribution Date upon which the Investor Certificateholders of any Series may surrender their Investor Certificates for payment of the final distribution with respect to such Series and cancellation, shall be given (subject to at least 30 days' (or such shorter period as is acceptable to the Trustee as determined in its sole and absolute discretion) prior written notice from the Servicer to the Trustee containing all information required for the Trustee's notice) by the Trustee to Investor Certificateholders of such Series, mailed not later than the fifth day of the month of such final distribution and specifying (i) the Distribution Date upon which final payment of the Investor Certificates will be made upon presentation and surrender of Investor Certificates at the office or offices therein designated, (ii) the amount of any such final payment and (iii) that the Record Date otherwise applicable to such Distribution Date is not applicable, payments being made only upon presentation and surrender of the Investor Certificates at the office or offices therein specified. The Servicer's notice to the Trustee in accordance with the preceding sentence shall be accompanied by an Officer's Certificate setting forth the information specified in Section 4.3 of the Servicing Agreement covering the period during the then current calendar year through the date of such notice. The Trustee shall give such notice to the Transfer Agent and Registrar and the Paying Agent at the time such notice is given to such Investor Certificateholders. (a) Notwithstanding the termination of the Trust pursuant to subsection 9.1(a) or the occurrence of the Series Termination Date with respect to any Series pursuant to Section 9.2, all funds then on deposit in the Collection Account (but only to the extent necessary to pay all outstanding and unpaid amounts to Certificateholders) shall continue to be held in trust for the benefit of the Certificateholders, and the Paying Agent or the Trustee shall pay such funds to the Certificateholders upon surrender of their Certificates in accordance with the terms hereof. Any Certificate not surrendered on the date specified in subsection 9.3(a)(i) shall cease to accrue any interest provided for such Certificate from and after such date. In the event that all of the Investor Certificateholders shall not surrender their Certificates for cancellation within six months after the date specified in the above-mentioned written notice, the Trustee shall give a second written notice to the remaining Investor Certificateholders of such Series to surrender their Certificates for cancellation and receive the final distribution with respect thereto. If within one year after the second notice all the Investor Certificates of such Series shall not have been surrendered for cancellation, the Trustee may take appropriate steps, or may appoint an agent to take appropriate steps, to contact the remaining Investor Certificateholders of such Series concerning surrender of their Certificates, and the cost thereof shall be paid out of the funds in the Collection Account held for the benefit of such Investor Certificateholders. The Trustee and the Paying Agent shall pay to the Company upon request any monies held by them for the payment of principal or interest that remains unclaimed for two years. After payment to the Company, 72 Certificateholders entitled to the money must look to the Company for payment as general creditors unless an applicable abandoned property law designates another Person. (b) All Certificates surrendered for payment of the final distribution with respect to such Certificates and cancellation shall be canceled by the Transfer Agent and Registrar and be disposed of in a customary manner satisfactory to the Trustee. IX.4. COMPANY'S TERMINATION RIGHTS. Upon the termination of the Trust pursuant to Section 9.1 and the surrender of the Exchangeable Company Certificate and payment to the Trustee (in its capacity as such and/or in its capacity as Successor Servicer) of all amounts owed to it under any Pooling and Servicing Agreement, the Trustee shall assign and convey to the Company (without recourse, representation or warranty) in exchange for the Exchangeable Company Certificate all right, title and interest of the Trust in the Trust Assets, whether then existing or thereafter created, and all proceeds thereof except for amounts held by the Trustee pursuant to subsection 9.3(b). The Trustee shall execute and deliver such instruments of transfer and assignment, in each case without recourse, representation or warranty, as shall be reasonably requested by the Company to vest in the Company all right, title and interest which the Trust had in the Trust Assets. X MISCELLANEOUS PROVISIONS X.1. AMENDMENT. (a) Any Pooling and Servicing Agreement, including any schedule or exhibit thereto, may be amended in writing from time to time by the Servicer, the Company and the Trustee, without the consent of any holder of any outstanding Certificate, to cure any ambiguity, to correct or supplement any provisions herein or therein which may be inconsistent with any other provisions herein or therein or to add any other provisions hereof to change in any manner or eliminate any of the provisions with respect to matters or questions raised under any Pooling and Servicing Agreement which shall not be inconsistent with the provisions of any Pooling and Servicing Agreement; PROVIDED, HOWEVER, that such action shall not, as evidenced by an Officer's Certificate from the Company and, to the extent, in the reasonable view of the Company, a question of law exists, supported by an Opinion of Counsel delivered to the Trustee, adversely affect in any material respect the interests of the Investor Certificateholders. The Trustee may, but shall not be obligated to, enter into any such amendment pursuant to this paragraph or paragraph (b) below which affects the Trustee's rights, duties or immunities under any Pooling and Servicing Agreement or otherwise. (a) Any Pooling and Servicing Agreement and any schedule or exhibit thereto may also be amended in writing from time to time by the Servicer, the Company and the Trustee with the consent of Investor Certificateholders evidencing more than 50% of the Invested Amount of any Series adversely affected by the amendment (or, if any such Series shall have more than one Class of Investor Certificates adversely affected by the amendment, 50% or more of the Invested Amount of each such Class) for the purpose of adding any provisions to or changing in any 73 manner or eliminating any of the provisions of such Pooling and Servicing Agreement or such other agreement or of modifying in any manner the rights of holders of any Series then issued and outstanding; PROVIDED, HOWEVER, that no such amendment shall (i) reduce in any manner the amount of, or delay the timing of, distributions which are required to be made on any Investor Certificate of such Series without the consent of such Investor Certificateholder of such Series; (ii) change the definition of or the manner of calculating the interest of any Investor Certificateholder of such Series without the consent of such Investor Certificateholder; or (iii) reduce the aforesaid percentage of Fractional Undivided Interests the holders of which are required to consent to any such amendment, in each case without the consent of all Certificateholders of each Series adversely affected in any material respect. (b) Notwithstanding anything in this Section 10.1 to the contrary, the Supplement with respect to any Series may be amended on the terms and with the procedures provided in such Supplement. (c) The Company or the Servicer shall deliver any proposed amendment to each Agent at least five days prior to the execution and delivery thereof. (d) Promptly after the execution of any such amendment or consent the Trustee shall furnish written notification of the substance of such amendment to each Certificateholder of each Outstanding Series (or with respect to an amendment of a Supplement, of the applicable Series), and the Servicer shall furnish written notification of the substance of such amendment to each Rating Agency. No such amendment (including, without limitation, the amendment of any Supplement, notwithstanding anything to the contrary contained in any Supplement) shall be effective until the Rating Agency Condition has been satisfied. (e) It shall not be necessary for the consent of Investor Certificateholders under this Section 10.1 to approve the particular form of any proposed amendment, but it shall be sufficient if such consent shall approve the substance thereof. The manner of obtaining such consents and of evidencing the authorization of the execution thereof by Investor Certificateholders shall be subject to such reasonable requirements as the Trustee may prescribe. (f) In executing or accepting any amendment pursuant to this Section 10.1, the Trustee shall, upon request, be entitled to receive and rely upon (i) an Opinion of Counsel (A) stating that such amendment is authorized pursuant to a specific provision of a Pooling and Servicing Agreement and complies with such provision, and (B) stating that all conditions precedent to the execution and delivery of such amendment shall have been satisfied in full, which opinion in the case of this clause (B) may, to the extent that such opinion concerns questions of fact, rely on an Officer's Certificate with respect to such questions of fact, (ii) a certificate from a Responsible Officer of the Company stating that such amendment shall not adversely affect the interests of the holders of any outstanding Certificates in any material respect except for holders of the Series whose consent to such amendment has been obtained in accordance with clause (b) of this Section 10.1 and (iii) a Tax Opinion. 74 X.2. PROTECTION OF RIGHT, TITLE AND INTEREST TO TRUST. (a)The Servicer shall cause this Agreement, any Supplement, all amendments hereto and/or all financing statements and continuation statements and any other necessary documents covering the Certificateholders' and the Trustee's right, title and interest to the Trust to be promptly recorded, registered and filed, and at all times to be kept recorded, registered and filed, all in such manner and in such places as may be required by law fully to preserve and protect the right, title and interest of the Trustee hereunder to all property comprising the Trust. The Servicer shall deliver to the Trustee file-stamped copies of, or filing receipts for, any document recorded, registered or filed as provided above, as soon as available following such recording, registration or filing. The Company shall cooperate fully with the Servicer in connection with the obligations set forth above and will execute any and all documents reasonably required to fulfill the intent of this subsection 10.2(a). (a) With respect to any prospective change in its name, identity or corporate structure, the Company shall comply fully with subsection 2.8(m) hereof and shall file such financing statements or amendments as may be necessary to continue the perfection of the Trust's security interest in the Receivables and the proceeds thereof. If the Company determines that no refiling is required, it shall provide to the Trustee an Opinion of Counsel so stating. X.3. LIMITATION ON RIGHTS OF CERTIFICATEHOLDERS. (a) The death or incapacity of any Certificateholder shall not operate to terminate this Agreement or the Trust, nor shall such death or incapacity entitle such Certificateholders' legal representatives or heirs to claim an accounting or to take any action or commence any proceeding in any court for a partition or winding up of the Trust, nor otherwise affect the rights, obligations and liabilities of the parties hereto or any of them. (a) Except with respect to the Investor Certificateholders as expressly provided in any Pooling and Servicing Agreement, no Certificateholder shall have any right to vote or in any manner otherwise control the operation and management of the Trust, or the obligations of the parties hereto. Nor shall any Certificateholder be under any liability to any third person by reason of any action taken by the parties to this Agreement pursuant to any provision hereof. (b) No Certificateholder shall have any right by virtue of any provisions of this Agreement to institute any suit, action or proceeding in equity or at law upon or under or with respect to this Agreement, unless such Certificateholder previously shall have given to the Trustee written request to institute such action, suit or proceeding in its own name as Trustee hereunder and shall have offered to the Trustee such reasonable indemnity as it may require against the costs, expenses and liabilities to be incurred therein or thereby, and the Trustee, for 60 days after its receipt of such notice, request and offer of indemnity, shall have neglected or refused to institute any such action, suit or proceeding; it being understood and intended, and being expressly covenanted by each Certificateholder with every other Certificateholder and the Trustee, that no one or more Certificateholders shall have any right in any manner whatever by virtue of or by availing itself or themselves of any provisions of the Pooling and Servicing Agreements to affect, disturb or prejudice the rights of any other of the Investor Certificates, or to obtain or seek to obtain priority over or preference to any other such Investor Certificateholder, or to enforce any right under this Agreement, except in the manner herein provided and for the equal, ratable 75 and common benefit of all Investor Certificateholders. For the protection and enforcement of the provisions of this Section 10.3, each and every Certificateholder and the Trustee shall be entitled to such relief as can be given either at law or in equity. (c) By their acceptance of Certificates pursuant to this Agreement and the applicable Supplement, the Certificateholders agree to the provisions of this Section 10.3. X.4. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS. X.5. NOTICES. All notices, requests and demands to or upon the respective parties hereto to be effective shall be in writing (including by facsimile), and, unless otherwise expressly provided herein, shall be deemed to have been duly given or made when delivered by hand, or three days after being deposited in the mail, postage prepaid, or, in the case of facsimile notice, when received, (i) addressed as follows in the case of the Company, the Servicer and the Trustee and (ii) in the case of the Sub-Servicers, as set forth under their signatures in the Receivables Sale Agreement, or, in either case, to such other address as may be hereafter notified by the respective parties hereto: The Company: Rykoff-Sexton Funding Corporation 3773 Howard Hughes Parkway, Suite 300N Las Vegas, Nevada 89109 Attention: Michael W. Orendorf Facsimile: (702) 892-3906 with a copy to the Servicer: The Servicer: Rykoff-Sexton, Inc. 1050 Warrenville Road Lisle, Illinois 60532 Attention: James A. Couch Facsimile: (708) 971-7898 The Trustee: Chemical Bank 450 West 33rd Street, 15th Floor New York, New York 10001 Attention: Michael Morcom Advanced Structured Products Facsimile: 212-946-3916 Any notice required or permitted to be mailed to a Certificateholder shall be given by first-class mail, postage prepaid, at the address of such Certificateholder as shown in the Certificate Register. Any notice so mailed within the time prescribed in any Pooling and Servicing 76 Agreement shall be conclusively presumed to have been duly given, whether or not the Certificateholder receives such notice. X.6. SEVERABILITY OF PROVISIONS. If any one or more of the covenants, agreements, provisions or terms of any Pooling and Servicing Agreement shall for any reason whatsoever be held invalid, then such covenants, agreements, provisions or terms shall be deemed severable from the remaining covenants, agreements, provisions or terms of such Pooling and Servicing Agreement and shall in no way affect the validity or enforceability of the other provisions of any Pooling and Servicing Agreement or of the Certificates or rights of the Certificateholders. X.7. ASSIGNMENT. Notwithstanding anything to the contrary contained herein, except as provided in Section 5.3 of the Servicing Agreement, no Pooling and Servicing Agreement may be assigned by the Company or the Servicer without the prior written consent of the Trustee acting on behalf of the holders of 66-2/3% of the Invested Amount of each Outstanding Series and without the Rating Agency Condition's having been satisfied with respect to such assignment. X.8. CERTIFICATES NONASSESSABLE AND FULLY PAID. It is the intention of the parties to each Pooling and Servicing Agreement that the Investor Certificateholders shall not be personally liable for obligations of the Trust, that the interests in the Trust represented by the Investor Certificates shall be nonassessable for any losses or expenses of the Trust or for any reason whatsoever and that Investor Certificates upon authentication thereof by the Trustee pursuant to Section 5.2 are and shall be deemed fully paid. X.9. FURTHER ASSURANCES. The Company and the Servicer agree to do and perform, from time to time, any and all acts and to execute any and all further instruments required or reasonably requested by the Trustee more fully to effect the purposes of each Pooling and Servicing Agreement, including, without limitation, the execution of any financing statements or continuation statements relating to the Receivables for filing under the provisions of the UCC of any applicable jurisdiction. X.10. NO WAIVER; CUMULATIVE REMEDIES. No failure to exercise and no delay in exercising, on the part of the Trustee or the Investor Certificateholders, any right, remedy, power or privilege hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided are cumulative and not exhaustive of any rights, remedies, powers and privileges provided by law. X.11. COUNTERPARTS. This Agreement may be executed in two or more counterparts (and by different parties on separate counterparts), each of which shall be an original, but all of which together shall constitute one and the same instrument. X.12. THIRD-PARTY BENEFICIARIES. This Agreement will inure to the benefit of and be binding upon the parties hereto, the Certificateholders and their respective successors and 77 permitted assigns. Except as otherwise provided in Section 6.3 and this Article X, no other Person will have any right or obligation hereunder. X.13. ACTIONS BY CERTIFICATEHOLDERS. (a) Wherever in any Pooling and Servicing Agreement a provision is made that an action may be taken or a notice, demand or instruction given by Investor Certificateholders, such action, notice or instruction may be taken or given by any Investor Certificateholders of any Series, unless such provision requires a specific percentage of Investor Certificateholders of a certain Series or all Series. (a) Any request, demand, authorization, direction, notice, consent, waiver or other act by a Certificateholder shall bind such Certificateholder and every subsequent holder of such Certificate issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done or omitted to be done by the Trustee, the Company or the Servicer in reliance thereon, whether or not notation of such action is made upon such Certificate. X.14. MERGER AND INTEGRATION. Except as specifically stated otherwise herein, this Agreement sets forth the entire understanding of the parties relating to the subject matter hereof, and all prior understandings, written or oral, are superseded by this Agreement and the Servicing Agreement. This Agreement and the Servicing Agreement may not be modified, amended, waived, or supplemented except as provided herein. X.15. HEADINGS. The headings herein are for purposes of reference only and shall not otherwise affect the meaning or interpretation of any provision hereof. X.16. CONSTRUCTION OF AGREEMENT. (a) The Company hereby grants to the Trustee, for the benefit of the Certificateholders, a perfected first priority security interest in all of the Company's right, title and interest in, to and under the Receivables and the other Trust Assets now existing and hereafter created, all monies due or to become due and all amounts received with respect thereto and all "proceeds" thereof (including Recoveries), to secure all of the Company's and the Servicer's obligations hereunder, including, without limitation, the Company's obligation to sell or transfer Receivables hereafter created to the Trust. (a) This Agreement shall constitute a security agreement under applicable law. X.17. NO SET-OFF. Except as expressly provided in this Agreement, the Trustee agrees that it shall have no right of set-off or banker's lien against, and no right to otherwise deduct from, any funds held in the Collection Account for any amount owed to it by the Company, the Servicer or any Certificateholder. X.18. NO BANKRUPTCY PETITION. Each of the Trustee and the Servicer hereby covenants and agrees that, prior to the date which is one year and one day after the date of the end of the Amortization Period with respect to all Outstanding Series, it will not institute against, or join any other Person in instituting against, the Company any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings, or other proceedings under any federal or state bankruptcy or similar law. 78 X.19. LIMITATION OF LIABILITY. It is expressly understood and agreed by the parties hereto that (a) each Pooling and Servicing Agreement is executed and delivered by the Trustee, not individually or personally but solely as Trustee of the Trust, in the exercise of the powers and authority conferred and vested in it, (b) except with respect to Section 8.15 hereof the representations, undertakings and agreements herein made on the part of the Trust are made and intended not as personal representations, undertakings and agreements by the Trustee, but are made and intended for the purpose of binding only the Trust, (c) nothing herein contained shall be construed as creating any liability of the Trustee, individually or personally, to perform any covenant either expressed or implied contained herein, all such liability, if any, being expressly waived by the parties who are signatories to this Agreement and by any Person claiming by, through or under such parties; PROVIDED, HOWEVER, the Trustee shall be liable in its individual capacity for its own misconduct or negligence and for any tax assessed against the Trustee based on or measured by any fees, commission or compensation received by it for acting as Trustee and (d) under no circumstances shall the Trustee be personally liable for the payment of any indebtedness or expenses of the Trust or be liable for the breach or failure of any obligation, representation, warranty or covenant made or undertaken by the Trust under any Pooling and Servicing Agreement; PROVIDED FURTHER, that the foregoing clauses (a) through (d) shall survive the resignation or removal of the Trustee. The Company hereby agrees to indemnify and hold harmless the Trustee and the Trust for the benefit of the Certificateholders (each, an "INDEMNIFIED PERSON") from and against any loss, liability, expense, damage or injury suffered or sustained by reason of any acts, omissions or alleged acts or omissions arising out of, or relating to, activities of the Company pursuant to any Pooling and Servicing Agreement to which it is a party, including but not limited to any judgment, award, settlement, reasonable attorneys' fees and other reasonable costs or expenses incurred in connection with the defense of any actual or threatened action, proceeding or claim, except to the extent such loss, liability, expense, damage or injury resulted from the negligence, bad faith or wilful misconduct of an indemnified person; PROVIDED that any payments made by the Company pursuant to this subsection shall be made solely from funds available to the Company which are not otherwise needed to be applied to the payment of any amounts pursuant to any Pooling and Servicing Agreements, shall be non-recourse other than with respect to proceeds in excess of the proceeds to make such payment, and shall not constitute a claim against the Company to the extent that insufficient proceeds exist to make such payment. X.20. CERTAIN INFORMATION. The Servicer and the Company shall promptly provide to the Trustee such information in computer tape, hard copy or other form regarding the Receivables as the Trustee may reasonably request to perform its obligations hereunder. X.21. INCLUSION OF EXCLUDED RECEIVABLES. If any Seller shall satisfy the Servicer that a particular class of Excluded Receivables originated by such Seller can be properly accounted for so as to permit a complete and accurate determination of the Principal Amount thereof which may be set forth on each Daily Report of the Servicer, then such Seller and the Servicer shall deliver a written notification to the Company and the Trustee to that effect requesting that such Excluded Receivables be included as Receivables from and after a date 79 specified therein, which date shall be no earlier than 30 days after the date such notification is sent (such later date, the "RECEIVABLES INCLUSION DATE"). From and after the related Receivables Inclusion Date, the Receivables shall be deemed to include such Excluded Receivables for all purposes hereunder and under the other Transaction Documents; PROVIDED that no such inclusion shall occur unless the Rating Agency Condition has been satisfied with respect thereto. IN WITNESS WHEREOF, the Company, the Servicer and the Trustee have caused this Agreement to be duly executed by their respective officers as of the day and year first above written. RYKOFF-SEXTON FUNDING CORPORATION, as Company By:/s/ --------------------------- Name: Title: RYKOFF-SEXTON, INC., as Servicer By:/s/ --------------------------- Name: Title: CHEMICAL BANK, not in its individual capacity but solely as Trustee By:/s/ --------------------------- Name: Title: Schedule 1 RECEIVABLES Tape to be delivered by the Company to the Trustee. Schedule 2 IDENTIFICATION OF TRUST ACCOUNTS The following accounts have been established by and at Chemical Bank: NAME NUMBER Rykoff-Sexton Funding Corp. Collection Account 507-862384 Rykoff-Sexton Funding Corp. Company Collection Subaccount 507-862392 Rykoff-Sexton Funding Corp. Series 1996-1 Collection Subaccount 507-862406 Rykoff-Sexton Funding Corp. Series 1996-1 Principal Collection Sub-subaccount 507-862503 Rykoff-Sexton Funding Corp. Series 1996-1 Non-Principal Collection Sub-subaccount 507-862554 Rykoff-Sexton Funding Corp. Series 1996-1 Accrued Interest Sub-subaccount 507-862597 Rykoff-Sexton Funding Corp. Series 1996-1 Collection Subordinated Sub-subaccount 507-862600 Schedule 3 ACTIONS WITH RESPECT TO CHATTEL PAPER Each Seller and the Servicer, in each case acting as custodian for the Company, and the Company, shall immediately take all of the following actions (in addition to all other actions set forth or reasonably requested as described in the Transaction Documents and in all documents executed in connection with the sale of an interest in the Receivables and the grant of a security interest therein to other Persons) to protect or more fully evidence the security interest granted by the Company in chattel paper evidencing Receivables pursuant to agreements and documents entered into after the initial Issuance Date (such chattel paper being the "CHATTEL PAPER"): (a) Wherever it is located, maintain all Chattel Paper in segregated storage cabinets, which cabinets will contain no other documents; (b) Conspicuously mark each such storage cabinet to indicate that the documents contained therein are Chattel Paper evidencing Receivables of the Company; (c) Stamp in red the original of the each document constituting Chattel Paper with a legend to read as follows: "THIS DOCUMENT AND ALL RIGHTS HEREUNDER HAVE BEEN SOLD TO RYKOFF- SEXTON FUNDING CORPORATION AND ARE SUBJECT TO A SECURITY INTEREST IN FAVOR OF CHEMICAL BANK, AS TRUSTEE." or such other legend that is reasonably acceptable to the Trustee; PROVIDED that at any time that an Early Amortization Event has occurred and is continuing, such Seller or the Servicer shall, at the request of the Trustee, stamp any Chattel Paper with the above legend prior to sending it to other parties for execution. Schedule 4 LOCATIONS OF CHIEF EXECUTIVE OFFICE OF THE COMPANY 3773 Howard Hughes Parkway Suite 300N Las Vegas, Nevada 89109 Schedule 5 CONTRACTUAL OBLIGATIONS None EX-10.41-1 20 SERIES 1996-1 SUPPLEMENT EXECUTION COPY - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- RYKOFF-SEXTON FUNDING CORPORATION, as Company, RYKOFF-SEXTON, INC., as Servicer, BANK OF AMERICA NATIONAL TRUST & SAVINGS ASSOCIATION, as Administrative Agent, THE CHASE MANHATTAN BANK, N.A., as Co-Agent, THE CHASE MANHATTAN BANK, N.A. and BANK OF AMERICA ILLINOIS, as Initial Purchasers and CHEMICAL BANK, as Trustee ------------------------- SERIES 1996-1 SUPPLEMENT Dated as of May 16, 1996 to POOLING AGREEMENT Dated as of May 16, 1996 ------------------------- RS RECEIVABLES MASTER TRUST - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TABLE OF CONTENTS Page ARTICLE I DEFINITIONS............................ 1 SECTION 1.1. Definitions.............................................. 1 ARTICLE II DESIGNATION OF CERTIFICATES; PURCHASE AND SALE OF THE VFC CERTIFICATES..................... 20 SECTION 2.1. Designation.............................................. 20 SECTION 2.2. The Series 1996-1 Certificates........................... 20 SECTION 2.3. Purchases of Interests in the VFC Certificates........... 21 SECTION 2.4. Delivery................................................. 21 SECTION 2.5. Procedure for Initial Issuance and for Increasing the Series 1996-1 Invested Amount...................... 22 SECTION 2.6. Procedure for Decreasing the Series 1996-1 Invested Amount; Optional Termination........................... 23 SECTION 2.7. Reductions of the Commitments............................ 24 SECTION 2.8. Interest; Commitment Fee................................. 25 SECTION 2.9. Indemnification by the Company and the Servicer.......... 25 ARTICLE III ARTICLE III OF THE AGREEMENT................... 27 SECTION 3A.2. Establishment of Trust Accounts.......................... 27 SECTION 3A.3. Daily Allocations. ...................................... 28 SECTION 3A.4. Determination of Interest................................ 31 SECTION 3A.5. Determination of Series 1996-1 Monthly Principal......... 33 SECTION 3A.6. Applications............................................. 34 ARTICLE IV DISTRIBUTIONS AND REPORTS.................... 35 SECTION 4A.1. Distributions............................................ 35 SECTION 4A.2. Daily Reports............................................ 36 SECTION 4A.3. Statements and Notices................................... 36 ARTICLE V ADDITIONAL EARLY AMORTIZATION EVENTS................ 37 SECTION 5.1. Additional Early Amortization Events..................... 37 ARTICLE VI SERVICING FEE........................... 40 SECTION 6.1. Servicing Compensation................................... 40 ARTICLE VII CHANGE IN CIRCUMSTANCES........................ 41 SECTION 7.1. Illegality............................................... 41 SECTION 7.2. Requirements of Law...................................... 41 SECTION 7.3. Taxes.................................................... 42 SECTION 7.4. Indemnity................................................ 43 SECTION 7.5. Inability to Determine Eurodollar Rate................... 44 ARTICLE VIII REPRESENTATIONS AND WARRANTIES, COVENANTS............. 45 SECTION 8.1. Representations and Warranties of the Company and the Servicer................................................. 45 SECTION 8.2. Covenants of the Company and the Servicer................ 45 SECTION 8.3. Covenants of the Servicer................................ 46 SECTION 8.4. Obligations Unaffected................................... 46 ARTICLE IX CONDITIONS PRECEDENT....................... 47 SECTION 9.1. Conditions Precedent to Effectiveness of Supplement...... 47 ARTICLE X THE AGENT............................. 50 SECTION 10.1. Appointment.............................................. 50 SECTION 10.2. Delegation of Duties..................................... 50 SECTION 10.3. Exculpatory Provisions................................... 50 SECTION 10.4. Reliance by Agents....................................... 51 SECTION 10.5. Notice of Servicer Default or Early Amortization Event or Potential Early Amortization Event.............. 51 SECTION 10.6. Non-Reliance on Agents and Other Purchasers.............. 51 SECTION 10.7. Indemnification.......................................... 52 SECTION 10.8. The Agents in Their Individual Capacities................ 52 SECTION 10.9. Successor Administrative Agent........................... 53 ARTICLE XI MISCELLANEOUS........................... 53 SECTION 11.1. Ratification of Agreement............................... 53 SECTION 11.2. Governing Law........................................... 53 SECTION 11.3. Further Assurances...................................... 53 SECTION 11.4. Payments................................................ 54 SECTION 11.5. Costs and Expenses...................................... 54 SECTION 11.6. No Waiver; Cumulative Remedies.......................... 54 SECTION 11.7. Amendments.............................................. 54 SECTION 11.8. Severability............................................ 55 SECTION 11.9. Notices................................................. 55 SECTION 11.10. Successors and Assigns.................................. 56 SECTION 11.11. Adjustments; Set-off.................................... 59 SECTION 11.12. Counterparts............................................ 59 SECTION 11.13. No Bankruptcy Petition.................................. 59 SECTION 11.14. Rating of VFC Certificates.............................. 60 SECTION 11.15. Limitation on Addition and Termination of Sellers....... 60 SECTION 11.16. Limitation on Division Transfers........................ 61 ARTICLE XII FINAL DISTRIBUTIONS........................ 61 SECTION 12.1. Certain Distributions..................................... 61 EXHIBITS Exhibit A Form of VFC Certificate, Series 1996-1 Exhibit B Form of Subordinated Company Certificate, Series 1996-1 Exhibit C Form of Commitment Transfer Supplement Exhibit D Form of Daily Report Exhibit E Form of Monthly Settlement Statement Exhibit F Form of Notice of Increase Exhibit G Form of Participation Certification Exhibit H Form of UCC Certificate SCHEDULES Schedule 1 Commitments Schedule 2 Trust Accounts SERIES 1996-1 SUPPLEMENT, dated as of May 16, 1996 (as amended, supplemented or otherwise modified from time to time, this "SUPPLEMENT"), among Rykoff-Sexton Funding Corporation, a Nevada corporation (the "COMPANY"), Rykoff- Sexton, Inc., a Delaware corporation ("RS"), as servicer (except where otherwise noted) (in such capacity, the "SERVICER"), the several banks or financial institutions parties to this Supplement as of the Issuance Date (collectively, the "INITIAL PURCHASERS"; each, individually, an "INITIAL PURCHASER"), the other financial institutions from time to time parties hereto as purchasers pursuant to Section 11.10, Bank of America National Trust and Savings Association ("BOFA"), in its capacity as Administrative Agent (the "ADMINISTRATIVE AGENT"), and The Chase Manhattan Bank, N.A. ("CHASE"), in its capacity as Co-Agent (the "CO-AGENT"), for the Purchasers (as hereinafter defined), and Chemical Bank, a New York banking corporation, in its capacity as Trustee (the "TRUSTEE") under the Agreement (as defined below). W I T N E S S E T H : WHEREAS, the Company, the Servicer and the Trustee have entered into a Pooling Agreement, dated as of May 16, 1996 (as amended, supplemented or otherwise modified from time to time, the "AGREEMENT"); WHEREAS, the Agreement provides, among other things, that the Company, the Servicer and the Trustee may at any time and from time to time enter into supplements to the Agreement for the purpose of authorizing the issuance on behalf of the Trust by the Company for execution and redelivery to the Trustee for authentication of one or more Series of Investor Certificates; and WHEREAS, the Company, the Servicer, the Trustee and the Initial Purchasers wish to supplement the Agreement as hereinafter set forth. NOW, THEREFORE, in consideration of the premises and of the mutual covenants herein contained, and other good and valuable consideration, the receipt and sufficiency of which are hereby expressly acknowledged, the parties hereto agree as follows: I DEFINITIONS I.1. DEFINITIONS. (a) The following words and phrases shall have the following meanings with respect to Series 1996-1 and the definitions of such terms are applicable to the singular as well as the plural form of such terms and to the masculine as well as the feminine and neuter genders of such terms: "ABR": shall mean, for any day, a rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to the greatest of (a) the Reference Rate in effect on such day, (b) the Base CD Rate in effect on such day plus 1% and (c) the Federal Funds 2 Effective Rate in effect on such day plus 1/2 of 1%. For purposes hereof: "REFERENCE RATE" shall mean the rate of interest per annum publicly announced (or, if not announced publicly, quoted internally) from time to time by the Administrative Agent as its reference rate in effect at its principal office in Chicago, Illinois; "BASE CD RATE" shall mean the sum of (a) the product of (i) the Three-Month Secondary CD Rate and (ii) a fraction, the numerator of which is one and the denominator of which is one minus the C/D Reserve Percentage and (b) the C/D Assessment Rate; "THREE-MONTH SECONDARY CD RATE" shall mean, for any day, the secondary market rate for three-month certificates of deposit reported as being in effect on such day (or, if such day shall not be a Business Day, the next preceding Business Day) by the Board of Governors of the Federal Reserve System or any successor thereto (the "BOARD") through the public information telephone line of the Federal Reserve Bank of New York (which rate will, under the current practices of the Board, be published in Federal Reserve Statistical Release H.15(519) during the week following such day), or, if such rate shall not be so reported on such day or such next preceding Business Day, the average of the secondary market quotations for three-month certificates of deposit of major money center banks in New York City received at approximately 10:00 A.M., New York City time, on such day (or, if such day shall not be a Business Day, on the next preceding Business Day) by the Administrative Agent from three New York City negotiable certificate of deposit dealers of recognized standing selected by it; and "FEDERAL FUNDS EFFECTIVE RATE" shall mean, for any day, the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for the day of such transactions received by the Administrative Agent from three federal funds brokers of recognized standing selected by it. Any change in the ABR due to a change in the Reference Rate, the Three-Month Secondary CD Rate or the Federal Funds Effective Rate shall be effective as of the opening of business on the effective day of such change in the Reference Rate, the Three-Month Secondary CD Rate or the Federal Funds Effective Rate, respectively. "ACCRUAL PERIOD" shall mean, for any Series, the period from and including a Distribution Date, or, in the case of the initial Accrual Period for such Series, the Issuance Date for such Series, to but excluding the succeeding Distribution Date. "ACCRUED EXPENSE AMOUNT" shall mean, for each Business Day during an Accrual Period, the sum of (i) one-tenth of the Series 1996-1 Monthly Interest (up to, but subject to adjustments for any Increase or Decrease in the Series 1996-1 Invested Amount, the amount thereof due and payable on the immediately succeeding Distribution Date and zero on each Business Day thereafter until such immediately succeeding Distribution Date), (ii) one-tenth of the Commitment Fee (up to the amount thereof due and payable on such immediately succeeding Distribution Date and zero on each Business Day thereafter until such immediately succeeding Distribution Date) payable to the VFC Certificateholders on 3 such immediately succeeding Distribution Date, (iii) one-tenth of the Series 1996-1 Certificates' PRO RATA portion of the Servicing Fee (up to the Series 1996-1 Certificates' PRO RATA portion of the amount thereof due and payable on such immediately succeeding Distribution Date and zero on each Business Day thereafter until such immediately succeeding Distribution Date) and (iv) all Program Costs which have accrued since the preceding Business Day; PROVIDED, HOWEVER, that if by the tenth Business Day of an Accrual Period, the entire amount of (A) the Commitment Fee due and payable on such immediately succeeding Distribution Date, (B) the Series 1996-1 Monthly Interest, (C) the Series 1996-1 Certificates' PRO RATA portion of the Servicing Fee and (D) all accrued Program Costs, in each case for such Accrual Period, shall not have been transferred to the applicable Account, the Accrued Expense Amount for such tenth Business Day (and each Business Day thereafter until paid) shall also include the amount of such shortfall. "ACQUIRING PURCHASER" shall have the meaning assigned in subsection 11.10(c). "ADDITIONAL INTEREST" shall have the meaning assigned in subsection 3A.4(b). "AGED RECEIVABLES RATIO" shall mean, as of the last day of each Settlement Period, the percentage equivalent of a fraction, (i) the numerator of which shall be the sum of (A) the aggregate unpaid balance of Receivables that were 91-120 days past their respective original invoice dates as of such last day and (B) the aggregate amount of Receivables of the Sellers which were charged off as uncollectible prior to the day which is 91 days after their respective original invoice dates during such Settlement Period, and (ii) the denominator of which shall be the aggregate Principal Amount of Receivables originated by the Sellers during the third prior Settlement Period (excluding the Settlement Period ended on such day). "AGENTS" shall mean, collectively, the Administrative Agent and the Co-Agent and each of their respective successors and assigns (each, individually, an "AGENT"). "AGGREGATE COMMITMENT AMOUNT" shall mean, with respect to any day, the aggregate amount of the Commitments of all Purchasers on such day, as reduced from time to time pursuant to Section 2.7. 4 "APPLICABLE MARGIN" shall mean (i) for each Eurodollar Tranche, at any date of determination, the rate per annum set forth below, opposite the period set forth below during which such date falls, as the margin for such period: PERIOD MARGIN ------ May 14, 1996 to but excluding November 14, 1996 1.00% November 14, 1996 to but excluding February 14, 1996 1.50% February 14, 1996 to but excluding May 14, 1997 2.25% May 14, 1997 and thereafter 2.50%; and (ii) for the Floating Tranche, at any date of determination, the rate per annum set forth below, opposite the period set forth below during which such date falls, as the margin for such period: PERIOD MARGIN ------ May 14, 1996 to but excluding November 14, 1996 0.00% November 14, 1996 to but excluding February 14, 1996 0.25% February 14, 1996 to but excluding May 14, 1997 1.00% May 14, 1997 and thereafter 1.25%. "ARTICLE VII COSTS" shall mean any amounts due pursuant to Article VII. "ASSIGNMENT/PARTICIPATION CERTIFICATION" shall mean an assignment or participation certification, as the case may be, in substantially the form of Exhibit G hereto. "AVAILABLE PRICING AMOUNT" shall mean, on any Business Day, the sum of (i) the Unallocated Balance PLUS (ii) the Increase, if any, on such date. "BASE DAILY INTEREST EXPENSE" shall mean, for any day in any Accrual Period, the sum of (A) the product of (i) the portion of the Series 1996-1 Invested Amount (calculated with respect to all Purchasers without regard to clauses (d) and (e) of the definition of Series 1996-1 Purchaser Invested Amount) allocable to the Floating Tranche on such day divided by 365 (or 366, as the case may be) and (ii) the ABR plus the Applicable Margin in effect on such day, and (B) the product of (i) the portion of the Series 1996-1 Invested Amount (calculated with respect to all Purchasers without regard to clauses (d) and (e) of the definition of Series 1996-1 Purchaser Invested Amount) allocable to Eurodollar Tranches on such day divided by 360 and (ii) the weighted average Eurodollar Rate plus the Applicable Margin on such day in effect with respect thereto; PROVIDED, HOWEVER, that for any such day during the continuance of an Early Amortization Period, the "Base Daily Interest Expense" for such day shall be equal to the greater of (i) the sum of the amounts calculated pursuant to clauses (A) and (B) above and (ii) the product of (x) the Series 1996-1 Invested Amount on such day divided by 365 (or 366, as the case may be) and (y) the ABR in effect on such day plus 2.0%. 5 "BENEFITTED PURCHASER" shall have the meaning assigned in Section 11.11. "BOARD" shall mean the Board of Governors of the Federal Reserve System of the United States or any successor thereto. "BOFA" shall have the meaning specified in the preamble hereto. "CARRYING COST RESERVE RATIO" shall mean, as of any Settlement Report Date and continuing until (but not including) the next Settlement Report Date, an amount (expressed as a percentage) equal to (a) the product of (i) 2.00 TIMES Days Sales Outstanding as of such day and (ii) 1.20 TIMES a rate per annum equal to the ABR as of such earlier Settlement Report Date plus 2%, DIVIDED BY (b) 365 (or 366, as the case may be). "C/D ASSESSMENT RATE" for any day pertaining to a Floating Tranche, the net annual assessment rate (rounded upwards, if necessary, to the next 1/100 of 1%) determined by the Administrative Agent to be payable on such day to the Federal Deposit Insurance Corporation or any successor (the "FDIC") (or any successor) for the FDIC's (or such successor's) insuring time deposits made in Dollars at offices of the Administrative Agent in the United States. "C/D RESERVE PERCENTAGE" for any day pertaining to a Floating Tranche, that percentage (expressed as a decimal) which is in effect on such day, as prescribed by the Board, for determining the maximum reserve requirement for a Depositary Institution (as defined in Regulation D of the Board) in respect of new non-personal time deposits in Dollars having a maturity of 30 days or more. "CERTIFICATE RATE" shall mean, on any date of determination, the average (weighted based on the respective outstanding amounts of the Floating Tranche and each Eurodollar Tranche) of the ABR in effect on such day and the Eurodollar Rates in effect on such day PLUS, in each case, the respective Applicable Margins. "CHANGE IN CONTROL" shall mean the occurrence of any event the result of which causes the Company not to be a direct, wholly-owned Subsidiary of RS. "CHASE" shall have the meaning specified in the preamble hereto. "CLEAN-UP CALL AMOUNT" shall mean the Clean-Up Call Percentage of the maximum Series 1996-1 Invested Amount at any time during the Series 1996-1 Revolving Period. "CLEAN-UP CALL PERCENTAGE" shall mean 10%. 6 "COMMITMENT" shall mean, as to any Purchaser, its obligation to maintain and, subject to certain conditions, increase, its Series 1996-1 Purchaser Invested Amount, in an aggregate amount not to exceed at any one time outstanding the amount set forth opposite such Purchaser's name on Schedule 1 under the caption "Commitment", as such amount may be reduced from time to time as provided herein; collectively, as to all Purchasers, the "COMMITMENTS". "COMMITMENT FEE" shall have the meaning assigned in subsection 2.8(b). "COMMITMENT PERCENTAGE" shall mean, as to any Purchaser and as of any date, the percentage equivalent of a fraction, the numerator of which is such Purchaser's Commitment as set forth on Schedule 1 and the denominator of which is the Aggregate Commitment Amount as of such date. "COMMITMENT PERIOD" shall mean the period commencing on the Issuance Date and terminating on the date on which the Series 1996-1 Amortization Period commences. "COMMITMENT REDUCTION" shall have the meaning assigned in subsection 2.7(a). "COMMITMENT TERMINATION DATE" shall mean the earlier of (a) the Scheduled Revolving Termination Date and (b) the date on which the Commitments are terminated in whole pursuant to Section 2.7. "COMMITMENT TRANSFER SUPPLEMENT" shall have the meaning assigned in subsection 11.10(c). "D&P" shall mean Duff & Phelps Credit Rating Co. or any successor thereto. "DAILY INTEREST EXPENSE" shall mean, for any Business Day, an amount equal to (i) the amount of accrued and unpaid Base Daily Interest Expense in respect of such day PLUS (ii) the aggregate amount of all previously accrued and unpaid Base Daily Interest Expense PLUS (iii) the aggregate amount of all accrued and unpaid Additional Interest. "DAILY REPORT" shall mean a report prepared by the Servicer on each Business Day for the period specified therein, in substantially the form of Exhibit D. "DAYS SALES OUTSTANDING" shall mean, as of any Settlement Report Date and continuing until (but not including) the next Settlement Report Date, the number of days equal to the product of (a) 91 and (b) the amount obtained by dividing (i) the aggregate Principal Amount of Eligible Receivables by (ii) the aggregate Principal Amount of Receivables generated by the Sellers for the three Settlement Periods immediately preceding such earlier Settlement Report Date. 7 "DECREASE" shall have the meaning assigned in Section 2.6. "DEFAULT RATIO" shall mean, for any Settlement Period, a ratio (expressed as a percentage) equal to the quotient of (a) the aggregate outstanding Principal Amount of all Receivables which are unpaid in whole or in part for more than 91 days after their respective original invoice dates on the last day of such Settlement Period, and (b) the aggregate outstanding Principal Amount of all Receivables on such last day. "DILUTION HORIZON" shall mean, (i) for the period from the Issuance Date until the sixth Settlement Report Date to occur thereafter, 12.21 days, and (ii) for each six-month period (beginning and ending on a Settlement Report Date) to occur after such initial period, as determined by the Servicer by selecting a random sample of approximately 500 Dilution Adjustment memos created during such period, the number of days (expressed as a dollar weighted average based upon the Dilution Adjustments for such period) from the occurrence of any event which gives rise to a Dilution Adjustment until a Dilution Adjustment memo is issued by the Servicer in accordance with the Policies. "DILUTION HORIZON FACTOR" shall mean (a) for the period from the Issuance Date until the sixth Settlement Report Date to occur thereafter, .407, and (b) for each six-month period (beginning and ending on a Settlement Report Date) to occur after such initial period, a fraction, (i) the numerator of which is the Dilution Horizon for such period and (ii) the denominator of which is 30; PROVIDED, HOWEVER, that if the Dilution Horizon Factor for any period is less than the Dilution Horizon Factor for the immediately preceding period, then the actual Dilution Horizon Factor for such current period shall be recalculated to equal a fraction, the numerator of which is equal to the average of the numerators used to calculate the Dilution Horizon Factor for such immediately preceding period and such current period and the denominator of which is 30. "DILUTION PERIOD" shall mean, as of any Settlement Report Date and continuing until (but not including) the next Settlement Report Date, the quotient of (i) the product of (A) the aggregate Principal Amount of Receivables which were originated by the Sellers during the Settlement Period immediately preceding such earlier Settlement Report Date and (B) the Dilution Horizon Factor then in effect and (ii) the aggregate Principal Amount of Eligible Receivables as of the last day of the Settlement Period preceding such earlier Settlement Report Date. "DILUTION RATIO" shall mean, for each Settlement Period, an amount (expressed as a percentage) equal to the aggregate amount of Dilution Adjustments made during such Settlement Period DIVIDED BY the aggregate Principal Amount of Receivables which were originated by the Sellers during such Settlement Period. 8 "DILUTION RESERVE RATIO" shall mean, as of any Settlement Report Date and continuing until (but not including) the next Settlement Report Date, an amount (expressed as a percentage) which is calculated as follows: DRR = [(c * d) + [(e-d) * (e/d)]] * f Where: DRR = Dilution Reserve Ratio; c = 1.50; d = the average of the Dilution Ratio during the period of twelve consecutive Settlement Periods ending prior to such earlier Settlement Report Date; e = the highest Dilution Ratio for any Settlement Period during the period of twelve consecutive Settlement Periods ending prior to such earlier Settlement Report Date; and f = the Dilution Period. "DISCOUNT RATE" shall mean, as of any date of determination, the sum of (a) the weighted average interest rate in effect with respect to the VFC Certificates as of the end of the Settlement Period immediately preceding the most recent Settlement Report Date and (b) an amount equal to (i) the aggregate amount of fees (other than the Servicing Fee and Program Costs) accrued with respect to the VFC Certificates during the Settlement Period immediately preceding the most recent Settlement Report Date DIVIDED BY (ii) the average daily Series 1996-1 Invested Amount during such Settlement Period. "EARLY AMORTIZATION EVENT" shall have the meanings assigned in Section 5.1 of this Supplement and Section 7.1 of the Agreement. "EARLY AMORTIZATION PERIOD" shall have the meaning assigned in Section 5.1 of this Supplement and Section 7.1 of the Agreement. "EFFECTIVE DATE" shall have the meaning assigned in Section 9.1. "ELIGIBLE RECEIVABLES PERCENTAGE" shall mean a percentage equal to (a) 100 percent, MINUS (b) the Ineligible Receivables Percentage. "EUROCURRENCY RESERVE REQUIREMENTS": for any day pertaining to a Eurodollar Tranche, the aggregate (without duplication) of the rates (expressed as a decimal fraction) of reserve requirements in effect on such day (including, without limitation, basic, 9 supplemental, marginal and emergency reserves under any regulations of the Board or other Governmental Authority having jurisdiction with respect thereto) dealing with reserve requirements prescribed for eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in Regulation D of such Board) maintained by a member bank of the Federal Reserve System. "EURODOLLAR BASE RATE" shall mean, with respect to each day during each Eurodollar Period pertaining to a Eurodollar Tranche, the rate per annum determined by the Administrative Agent to be the arithmetic mean (rounded upward, if necessary, to the nearest 1/16th of 1%) of the rates of interest per annum notified to the Administrative Agent by BofA and Chase as the rate of interest at which Dollar deposits in the approximate amount of the portion of the Series 1996-1 Invested Amount allocable to such Eurodollar Tranche as of such day and having a maturity comparable to the Eurodollar Period applicable to such Eurodollar Tranche would be offered to prime banks in the London interbank market at their request at or about 11:00 a.m. (London time) on the second Business Day prior to the commencement of such Eurodollar Period. "EURODOLLAR PERIOD" shall mean, with respect to any Eurodollar Tranche: (a) initially, the period commencing on the Issuance Date or conversion date, as the case may be, with respect to such Eurodollar Tranche and ending one month thereafter (or such other period which is acceptable to the Purchasers and which in no event will be less than 15 days); and (b) thereafter, each period commencing on the last day of the immediately preceding Eurodollar Period applicable to such Eurodollar Tranche and ending one month thereafter (or such other period which is acceptable to the Purchasers and which in no event will be less than 15 days); PROVIDED THAT all Eurodollar Periods must end on the next Distribution Date and all of the foregoing provisions relating to Eurodollar Periods are subject to the following: (1) if any Eurodollar Period would otherwise end on a day that is not a Business Day, such Eurodollar Period shall be extended to the next succeeding Business Day unless the result of such extension would be to carry such Eurodollar Period into another calendar month, in which event such Eurodollar Period shall end on the immediately preceding Business Day; (2) any Eurodollar Period that would otherwise extend beyond the Scheduled Revolving Termination Date shall end on the Scheduled Revolving Termination Date; and 10 (3) any Eurodollar Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Eurodollar Period) shall end on the last Business Day of the calendar month at the end of such Eurodollar Period. "EURODOLLAR RATE" shall mean, with respect to each day during each Eurodollar Period pertaining to a portion of the Series 1996-1 Invested Amount allocated to a Eurodollar Tranche, a rate per annum determined for such day in accordance with the following formula (rounded upwards, if necessary, to the nearest 1/100th of 1%): EURODOLLAR BASE RATE ---------------------------------------- 1.00 - Eurocurrency Reserve Requirements "EURODOLLAR TRANCHE" shall mean a portion of the Series 1996-1 Invested Amount for which the Series 1996-1 Monthly Interest is calculated by reference to a Eurodollar Rate determined by reference to a particular Eurodollar Period. "FEDERAL FUNDS EFFECTIVE RATE" shall mean, for any day, the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for the day of such transactions received by the Administrative Agent from three federal funds brokers of recognized standing selected by it. "FLOATING TRANCHE" shall mean that portion of the Series 1996-1 Invested Amount not allocated to a Eurodollar Tranche for which the Series 1996-1 Monthly Interest is calculated by reference to the ABR. "INCREASE" shall have the meaning assigned in subsection 2.5(a). "INCREASE AMOUNT" shall have the meaning assigned in subsection 2.5(a). "INCREASE DATE" shall have the meaning assigned in subsection 2.5(a). "INELIGIBLE RECEIVABLES PERCENTAGE" shall mean the percentage equivalent of a fraction the numerator of which is the excess of the aggregate Principal Amount of Receivables on the last Business Day of the Series 1996-1 Revolving Period over the Aggregate Receivables Amount, as determined at the opening of business of the first Business Day of the Series 1996-1 Amortization Period, and the denominator of which is the aggregate Principal Amount of Receivables on the last Business Day of the Series 1996-1 Revolving Period. 11 "INITIAL PURCHASERS" shall have the meaning specified in the recitals hereto. "INITIAL SERIES 1996-1 INVESTED AMOUNT" shall mean $110,000,000. "INITIAL SERIES 1996-1 SUBORDINATED CERTIFICATE AMOUNT" shall mean the Series 1996-1 Subordinated Certificate Amount in respect of the Issuance Date. "INTEREST SHORTFALL" shall have the meaning assigned in subsection 3A.4(b). "INVESTED PERCENTAGE" shall mean, with respect to any Business Day (i) during the Series 1996-1 Revolving Period, the percentage equivalent of a fraction, the numerator of which is the Series 1996-1 Allocated Receivables Amount as of the end of the immediately preceding Business Day and the denominator of which is the Aggregate Receivables Amount as of the end of the immediately preceding Business Day and (ii) during the Series 1996-1 Amortization Period, the percentage equivalent of a fraction, the numerator of which is the Series 1996-1 Allocated Receivables Amount as of the end of the last Business Day of the Series 1996-1 Revolving Period (PROVIDED THAT if during the Series 1996-1 Amortization Period, the amortization periods of all other Outstanding Series which were outstanding prior to the commencement of the Series 1996-1 Amortization Period commence, then, from and after the date the last of such Series commences its Amortization Period, the numerator shall be the Series 1996-1 Allocated Receivables Amount as of the end of the Business Day preceding such date) and the denominator of which is the greater of (A) the Aggregate Receivables Amount as of the end of the immediately preceding Business Day and (B) the sum of the numerators used to calculate the Invested Percentage for all Outstanding Series on the Business Day for which such percentage is determined. "ISSUANCE DATE" shall mean May 17, 1996. "LOSS RESERVE RATIO" shall mean, as of any Settlement Report Date and continuing until (but not including) the next Settlement Report Date, an amount (expressed as a percentage) which is calculated as follows: LRR = [(a * b)/c] * d Where: LRR = Loss Reserve Ratio; a = the aggregate Principal Amount of Receivables originated by the Sellers during the three Settlement Periods immediately preceding such earlier Settlement Report Date; 12 b = the highest three-month rolling average of the Aged Receivables Ratio that occurred during the period of twelve consecutive Settlement Periods preceding such earlier Settlement Report Date; c = for the period prior to the first Settlement Report Date, the difference between (i) the aggregate outstanding Principal Amount of all Receivables and (ii) the aggregate outstanding Principal Amount of all Defaulted Receivables, in each case, originated by the Sellers as of the last day of the Settlement Period preceding such earlier Settlement Report Date; and thereafter, the Aggregate Receivables Amount as of the last day of the Settlement Period preceding such earlier Settlement Report Date; and d = 1.50. "LOSS-TO-LIQUIDATION RATIO" shall mean, for any Settlement Period, a ratio (expressed as a percentage) equal to the quotient of (a) the difference, if any, between (i) the aggregate Principal Amount of Charged- Off Receivables with respect to such Settlement Period and the immediately preceding two Settlement Periods and (ii) the aggregate amount of Recoveries during such three Settlement Periods, and (b) the aggregate amount of Collections during such three Settlement Periods. "MAJORITY PURCHASERS" shall mean, on any day, Purchasers having, in the aggregate on such day, more than 50% of the Aggregate Commitment Amount. "MATERIAL ADVERSE EFFECT" shall mean, as used herein and, for so long as Series 1996-1 is an Outstanding Series, in the Agreement and any other Transaction Document, (i) with respect to any Seller, a materially adverse effect on the business, operations, property or condition (financial or otherwise) of such Seller and its Subsidiaries taken as a whole, (ii) with respect to a Seller or a Servicing Party, (a) a material impairment of the ability of such Seller or such Servicing Party, as the case may be, to perform its obligations under the Transaction Documents, (b) a material impairment of the validity or enforceability of any of the Transaction Documents against such Seller or such Servicing Party, (c) a material impairment of the collectibility of the Receivables taken as a whole or (d) a material impairment of the interests, rights or remedies of the Trustee or the Investor Certificateholders under or with respect to the Transaction Documents, (iii) with respect to the Company, (a) a materially adverse effect on the business, operations, property or condition (financial or otherwise) of the Company, (b) a material impairment of the ability of the Company to perform its obligations under any Transaction Document to which it is a party, (c) a material impairment of the validity or enforceability of any of the Transaction Documents against the Company, (d) a material impairment of the collectibility of the Receivables taken as a whole or (e) a material impairment of the interests, rights or remedies of the Trustee or the Investor Certificateholders under or with respect to the Transaction Documents or (iv) with respect to RS and its Subsidiaries taken as a whole, 13 (a) a materially adverse effect on the business, operations, property or condition (financial or otherwise) of RS and its Subsidiaries taken as a whole, (b) a material impairment of the ability of the Company, any Servicing Party or any Seller to perform its obligations under the Transaction Documents, (c) a material impairment of the validity or enforceability of any of the Transaction Documents against any such Person, (d) a material impairment of the collectibility of the Receivables taken as a whole or (e) a material impairment of the interests, rights or remedies of the Trustee or the Investor Certificateholders under or with respect to the Transaction Documents. "MAXIMUM COMMITMENT AMOUNT" shall mean $110,000,000. "MINIMUM RATIO" shall mean, as of any Settlement Report Date and continuing until (but not including) the next Settlement Report Date, an amount (expressed as a percentage) which is calculated as follows: MR = (a * b) + c Where: MR = Minimum Ratio; a = the average of the Dilution Ratio during the period of the twelve consecutive Settlement Periods ending prior to such earlier Settlement Report Date; b = the Dilution Period; and c = 9%. "MONTHLY INTEREST PAYMENT" shall have the meaning assigned in subsection 3A.6(a). "NON-EXCLUDED TAXES" shall have the meaning assigned in subsection 7.3(a). "OPTIONAL TERMINATION DATE" shall have the meaning assigned in subsection 2.6(d). "OPTIONAL TERMINATION NOTICE" shall have the meaning assigned in subsection 2.6(d). "PARTICIPANTS" shall have the meaning assigned in subsection 11.10(b). "PBGC" shall mean the Pension Benefit Guaranty Corporation established pursuant to Subtitle A of Title IV of ERISA. 14 "PROGRAM COSTS" shall mean, for any Business Day, the sum of (i) all expenses, indemnities and other amounts due and payable to the Purchasers and the Agents under the Agreement or this Supplement (including, without limitation, any Article VII Costs), (ii) the product of (A) all unpaid fees and expenses due and payable to counsel to, and independent auditors of, the Company (other than fees and expenses payable on or in connection with the closing of the issuance of the Series 1996-1 Certificates) and (B) a fraction, the numerator of which is the Aggregate Commitment Amount on such Business Day and the denominator of which is the sum of (x) the Aggregate Invested Amounts on such Business Day (other than the Series 1996-1 Invested Amount and the Invested Amount in respect of any variable funding certificate of any other Outstanding Series) and (y) the Aggregate Commitment Amount on such Business Day plus the aggregate Commitment amount for any variable funding certificate of any other Outstanding Series, and (iii) all unpaid fees and expenses due and payable to any Rating Agencies rating the VFC Certificates; PROVIDED, HOWEVER, that Program Costs shall not exceed $75,000 in the aggregate in any fiscal year of the Servicer. "PURCHASER" shall mean each purchaser of a VFC Certificate, including each Initial Purchaser and each Acquiring Purchaser. "RATING AGENCY" shall mean, in the event that Series 1996-1 has been rated, S&P; PROVIDED that in the event that Series 1996-1 has not been rated, (i) "RATING AGENCY" and "RATING AGENCIES" shall mean "AGENT" and "AGENTS", respectively, until such time as such Series shall have been rated and (ii) notwithstanding anything to the contrary contained in the Agreement, with respect to any references to the "RATING AGENCY CONDITION" contained in this Supplement, the Agreement or any other Transaction Document, the "Rating Agency Condition" may be satisfied solely by way of compliance with subsection 8.2(d) hereof. "RECORD DATE" shall mean the first Business Day prior to each Distribution Date. "REGISTER" shall mean a register maintained by the Administrative Agent for recording transfers of the VFC Certificates. "SCHEDULED REVOLVING TERMINATION DATE" shall mean the last day of the Settlement Period ending in May 2001. "SERIES 1996-1" shall mean Series 1996-1, the Principal Terms of which are set forth in this Supplement. "SERIES 1996-1 ACCRUED INTEREST SUB-SUBACCOUNT" shall have the meaning assigned in subsection 3A.2(a). 15 "SERIES 1996-1 ADJUSTED INVESTED AMOUNT" shall mean, as of any date of determination, (i) the Series 1996-1 Invested Amount on such date, MINUS (ii) the amount on deposit in the Series 1996-1 Principal Collection Sub-subaccount on such date. "SERIES 1996-1 ALLOCABLE CHARGED-OFF AMOUNT" shall mean, with respect to any Special Allocation Settlement Report Date, the "Allocable Charged-Off Amount", if any, which has been allocated to Series 1996-1. "SERIES 1996-1 ALLOCABLE RECOVERIES AMOUNT" shall mean, with respect to any Special Allocation Settlement Report Date, the "Allocable Recoveries Amount", if any, which has been allocated to Series 1996-1. "SERIES 1996-1 ALLOCATED RECEIVABLES AMOUNT" shall mean, on any date of determination, the lower of (i) the Series 1996-1 Target Receivables Amount on such day and (ii) the product of (x) the Aggregate Receivables Amount on such day and (y) the percentage equivalent of a fraction the numerator of which is the Series 1996-1 Target Receivables Amount on such day and the denominator of which is the Aggregate Target Receivables Amount on such day. "SERIES 1996-1 AMORTIZATION PERIOD" shall mean the period commencing on the Business Day following the earliest to occur of (i) the date on which an Early Amortization Period is declared to commence or automatically commences, (ii) the Optional Termination Date and (iii) the Scheduled Revolving Termination Date and ending on the earlier of (i) the date when the Series 1996-1 Invested Amount shall have been reduced to zero and all accrued interest and other amounts owing on the VFC Certificates and to the Agents and the Purchasers hereunder shall have been paid in full and (ii) the Series 1996-1 Termination Date. "SERIES 1996-1 CERTIFICATES" shall mean, collectively, those Certificates designated as the VFC Certificates and the Series 1996-1 Subordinated Certificate. "SERIES 1996-1 COLLECTIONS" shall mean, on any Business Day, an amount equal to (i) the product of (a) the Aggregate Daily Collections on such day, TIMES (b) the Invested Percentage on such day MINUS (ii) the amounts transferred on such day from the Series 1996-1 Collection Subaccount pursuant to Section 3A.3(a)(i). "SERIES 1996-1 COLLECTION SUBACCOUNT" shall have the meaning assigned in subsection 3A.2(a). "SERIES 1996-1 COLLECTION SUBORDINATED SUB-SUBACCOUNT" shall have the meaning assigned in subsection 3A.2(a). 16 "SERIES 1996-1 INVESTED AMOUNT" shall mean, as of any date of determination, the sum of the Series 1996-1 Purchaser Invested Amounts of all Purchasers on such date. "SERIES 1996-1 MONTHLY INTEREST" shall have the meaning assigned in subsection 3A.4(a). "SERIES 1996-1 MONTHLY PRINCIPAL PAYMENT" shall have the meaning assigned in Section 3A.5. "SERIES 1996-1 MONTHLY SERVICING FEE" shall have the meaning assigned in Section 6.1. "SERIES 1996-1 NON-PRINCIPAL COLLECTION SUB-SUBACCOUNT" shall have the meaning assigned in subsection 3A.2(a). "SERIES 1996-1 NON-SUBORDINATED PERCENTAGE" shall mean a percentage equal to (a) 100 percent, MINUS (b) the Series 1996-1 Subordinated Percentage. "SERIES 1996-1 PRINCIPAL COLLECTION SUB-SUBACCOUNT" shall have the meaning assigned in subsection 3A.2(a). "SERIES 1996-1 PURCHASER INVESTED AMOUNT" shall mean, with respect to any Purchaser on the Issuance Date, an amount equal to the product of such Purchaser's Commitment Percentage on such date and the Initial Series 1996-1 Invested Amount, and with respect to such Purchaser on any date of determination thereafter, an amount equal to (a) such Purchaser's Series 1996-1 Purchaser Invested Amount on the immediately preceding Business Day (or, with respect to the day as of which such Purchaser becomes a party to this Supplement, whether by executing a counterpart hereof, a Commitment Transfer Supplement or otherwise, the portion of the transferor's Series 1996-1 Purchaser Invested Amount being purchased, in the case of an Acquiring Purchaser), PLUS (b) the amount of any increases in such Purchaser's Series 1996-1 Purchaser Invested Amount pursuant to Section 2.5 made on such day, MINUS (c) the amount of any distributions to such Purchaser pursuant to Section 2.6 on such day MINUS (d) the aggregate Series 1996-1 Allocable Charged-Off Amount applied to such Purchaser on or prior to such date pursuant to subsection 3A.5(b)(ii) PLUS (e) (but only to the extent of any unreimbursed reductions made pursuant to clause (d) above) the aggregate Series 1996-1 Allocable Recoveries Amount applied to such Purchaser on or prior to such date pursuant to subsection 3A.5(c)(i). "SERIES 1996-1 RATIO" shall mean, subject to Section 11.15, as of any Settlement Report Date and continuing until (but not including) the next Settlement Report Date, the greater of (i) the sum of the Loss Reserve Ratio and the Dilution Reserve Ratio and (ii) the Minimum Ratio, in each case, then in effect. 17 "SERIES 1996-1 REQUIRED RESERVES" shall mean, as of any date of determination and subject to Section 11.15, an amount equal to the sum of: (a) an amount equal to the product of (A) the Series 1996-1 Adjusted Invested Amount on such day (after giving effect to any increase or decrease thereof on such day) and (B) the percentage equivalent of (1) a fraction, the numerator of which is one and the denominator of which is one MINUS the Series 1996-1 Ratio, MINUS (2) one; (b) the product of (i) the Series 1996-1 Invested Amount on such day (after giving effect to any increase or decrease thereof on such day), (ii) the Carrying Cost Reserve Ratio in effect on such day and (iii) the percentage equivalent of a fraction, the numerator of which is one and the denominator of which is one MINUS the Series 1996-1 Ratio; (c) the product of (i) the aggregate Principal Amount of Receivables in the Trust on such day, (ii) the Series 1996-1 Invested Amount on such day (after giving effect to any increase or decrease thereof on such day) DIVIDED BY the Aggregate Invested Amount on such day, (iii) the Servicing Reserve Ratio in effect on such day and (iv) the percentage equivalent of a fraction, the numerator of which is one and the denominator of which is one MINUS the Series 1996-1 Ratio; and (d) the product of (i) $75,000 and (ii) the percentage equivalent of a fraction, the numerator of which is one and the denominator of which is one MINUS the Series 1996-1 Ratio. "SERIES 1996-1 REQUIRED RESERVES RATIO" shall mean, as of any date of determination, the quotient of (i) the sum of (A) the Series 1996-1 Required Reserves on such day and (B) the amount of any Accrued Expense Amount in respect of which sufficient Aggregate Daily Collections have not been transferred to the Series 1996-1 Non-Principal Collection Sub- subaccount and (ii) the Series 1996-1 Adjusted Invested Amount on such day. "SERIES 1996-1 REQUIRED SUBORDINATED AMOUNT" shall mean, subject to Section 11.15, (x) on any date of determination during the Series 1996-1 Revolving Period, the product of (i) the Series 1996-1 Adjusted Invested Amount and (ii) the Series 1996-1 Required Reserves Ratio and (y) on any date of determination during the Series 1996-1 Amortization Period, an amount equal to the Series 1996-1 Required Subordinated Amount on the last Business Day of the Series 1996-1 Revolving Period; PROVIDED, in each case, that such amount shall be adjusted on each Special Allocation Settlement 18 Report Date, if any, to the extent required as set forth in Section 3A.5(b)(i) and Section 3A.5(c)(ii). "SERIES 1996-1 REVOLVING PERIOD" shall mean the period commencing on the Issuance Date and terminating on the earliest to occur of the close of business on (i) the date on which an Early Amortization Period is declared to commence or automatically commences, (ii) the Optional Termination Date and (iii) the Commitment Termination Date. "SERIES 1996-1 SUBORDINATED CERTIFICATE" shall mean the Subordinated Company Certificate, Series 1996-1, executed by the Company and authenticated by or on behalf of the Trustee, substantially in the form of Exhibit B. "SERIES 1996-1 SUBORDINATED CERTIFICATE AMOUNT" shall mean, for any date of determination, an amount equal to (i) the Series 1996-1 Allocated Receivables Amount MINUS (ii) the Series 1996-1 Adjusted Invested Amount. "SERIES 1996-1 SUBORDINATED CERTIFICATE INCREASE AMOUNT" shall have the meaning assigned in subsection 2.5(a). "SERIES 1996-1 SUBORDINATED CERTIFICATE REDUCTION AMOUNT" shall have the meaning assigned in subsection 2.6(b). "SERIES 1996-1 SUBORDINATED INTEREST" shall have the meaning assigned in subsection 2.2(b). "SERIES 1996-1 SUBORDINATED PERCENTAGE" shall mean the percentage equivalent of a fraction the numerator of which is the Series 1996-1 Required Subordinated Amount on the last Business Day of the Series 1996-1 Revolving Period and the denominator of which is the sum of the Series 1996-1 Adjusted Invested Amount and Series 1996-1 Required Subordinated Amount, in each case on the last Business Day of the Series 1996-1 Revolving Period. "SERIES 1996-1 TARGET RECEIVABLES AMOUNT" shall mean, on any date of determination, the sum of (i) the Series 1996-1 Adjusted Invested Amount on such day and (ii) the Series 1996-1 Required Subordinated Amount for such day. "SERIES 1996-1 TERMINATION DATE" shall mean the Distribution Date that occurs in May 2001. "SERVICING RESERVE RATIO" shall mean, as of any Settlement Report Date and continuing until (but not including) the next Settlement Report Date, an amount (expressed as a percentage) equal to (i) the product of (A) the Servicing Fee Percentage 19 and (B) 2.0 TIMES Days Sales Outstanding as of such earlier Settlement Report Date, DIVIDED BY (ii) 360. "TRANSFER ISSUANCE DATE" shall mean the date on which a Commitment Transfer Supplement becomes effective pursuant to the terms of such Commitment Transfer Supplement. "TRANSFEREE" shall have the meaning assigned in subsection 11.10(f). "TRUST ACCOUNTS" shall have the meaning assigned in subsection 3A.2(a). "UCC CERTIFICATE" shall mean a certificate substantially in the form of Exhibit H to this Supplement. "UNALLOCATED BALANCE" shall mean, as of any Business Day, the sum of (i) the portion of the Series 1996-1 Invested Amount for which interest is then being calculated by reference to the ABR, and (ii) the portion of the Series 1996-1 Invested Amount allocated to any Eurodollar Tranche the Eurodollar Period in respect of which expires on such Business Day. "US FOODSERVICE" shall mean US Foodservice Inc., a Delaware corporation. "VFC CERTIFICATE" shall mean a VFC Certificate, Series 1996-1, executed by the Company and authenticated by or on behalf of the Trustee, substantially in the form of Exhibit A. "VFC CERTIFICATEHOLDERS" shall mean the Purchasers. "VFC CERTIFICATEHOLDERS' INTEREST" shall have the meaning assigned in subsection 2.2(a). (b) If any term or provision contained herein conflicts with or is inconsistent with any term, definition or provision contained in the Agreement, the terms and provisions of this Supplement shall govern. All capitalized terms not otherwise defined herein are defined in the Agreement. All Article, Section or subsection references herein shall mean Article, Section or subsections of this Supplement, except as otherwise provided herein. Unless otherwise stated herein, the context otherwise requires or such term is otherwise defined in the Agreement, each capitalized term used or defined herein shall relate only to the Series 1996-1 Certificates and no other Series of Investor Certificates issued by the Trust. 20 II DESIGNATION OF CERTIFICATES; PURCHASE AND SALE OF THE VFC CERTIFICATES II.1. DESIGNATION. The Certificates created and authorized pursuant to the Agreement and this Supplement shall be divided into two Classes, which shall be designated respectively as (i) the "VFC Certificates, Series 1996-1" and (ii) the "Subordinated Company Certificate, Series 1996-1." II.2. THE SERIES 1996-1 CERTIFICATES. (a) The VFC Certificates shall represent fractional undivided interests in the Trust, consisting of the right to receive (i) the Invested Percentage (expressed as a decimal) of Collections received with respect to the Receivables and all other funds on deposit in the Collection Account and (ii) all other funds on deposit in the Series Collection Subaccounts and any subaccounts thereof (collectively, the "VFC CERTIFICATEHOLDERS' INTEREST"). (a) The Series 1996-1 Subordinated Certificate shall represent a fractional undivided interest in the Trust, consisting of the right to receive Collections with respect to the Receivables allocated to the VFC Certificateholders' Interest and not required to be distributed to or for the benefit of the Purchasers (the "SERIES 1996-1 SUBORDINATED INTEREST"). The Exchangeable Company Certificate and any other Series of Investor Certificates outstanding shall represent the ownership interest in the remainder of the Trust not allocated pursuant hereto to the VFC Certificateholders' Interest or the Series 1996-1 Subordinated Interest. (b) The VFC Certificates and the Series 1996-1 Subordinated Certificate shall be substantially in the forms of Exhibits A and B, respectively, and shall, upon issue, be executed and delivered by the Company to the Trustee for authentication and redelivery as provided in Section 2.4 hereof and Section 5.2 of the Agreement. II.3. PURCHASES OF INTERESTS IN THE VFC CERTIFICATES. (a) INITIAL PURCHASE. Subject to the terms and conditions of this Supplement, including delivery of notice in accordance with Section 2.4, (i) each Initial Purchaser hereby severally agrees (A) to purchase on the Issuance Date a VFC Certificate in an amount equal to such Initial Purchaser's Commitment Percentage of the Initial Series 1996-1 Invested Amount and (B) to maintain its VFC Certificate, subject to increase or decrease during the Series 1996-1 Revolving Period, in accordance with the provisions of this Supplement and (ii) the Company hereby agrees (A) to purchase from the Trust on the Issuance Date the Series 1996-1 Subordinated Certificate in an amount equal to the Initial Series 1996-1 Subordinated Certificate Amount and (B) to maintain such interest in the Series 1996-1 Subordinated Certificate, subject to increase or decrease during the Series 1996-1 Revolving Period, in accordance with the provisions of this Supplement. Payments by the Initial Purchasers in respect of the VFC Certificates shall be made in immediately available funds on the Issuance Date to the Administrative Agent for payment to the Company. 21 (a) SUBSEQUENT PURCHASES. Subject to the terms and conditions of this Supplement, each Acquiring Purchaser hereby severally agrees to maintain its VFC Certificate, subject to increase or decrease during the Series 1996-1 Revolving Period, in accordance with the provisions of this Supplement. (b) MAXIMUM SERIES 1996-1 PURCHASER INVESTED AMOUNT. Notwithstanding anything to the contrary contained in this Supplement, at no time shall the Series 1996-1 Purchaser Invested Amount (calculated without regard to clauses (d) and (e) of the definition thereof) of any Purchaser exceed such Purchaser's Commitment at such time. II.4. DELIVERY. On the Issuance Date, the Company shall sign, on behalf of the Trust, and shall direct the Trustee in writing pursuant to Section 5.2 of the Agreement to duly authenticate, and the Trustee, upon receiving such direction, shall so authenticate (i) the VFC Certificates in such names and such denominations and deliver such VFC Certificates to the Initial Purchasers in accordance with such written directions and (ii) a Series 1996-1 Subordinated Certificate and deliver such Series 1996-1 Subordinated Certificate to the Company as holder thereof in accordance with such written directions. The VFC Certificates shall be issued in minimum denominations of $5,000,000 and in integral multiples of $1 in excess thereof. The Trustee shall mark on its books the actual Series 1996-1 Purchaser Invested Amount and Series 1996-1 Subordinated Certificate Amount outstanding on any date of determination, which, absent manifest error, shall constitute PRIMA FACIE evidence of the outstanding Series 1996-1 Purchaser Invested Amount and Series 1996-1 Subordinated Certificate Amount from time to time. 22 SECTION II.5. PROCEDURE FOR INITIAL ISSUANCE AND FOR INCREASING THE SERIES 1996-1 INVESTED AMOUNT. II(e) Subject to subsection 2.5(b), on any Business Day during the Commitment Period, each Purchaser agrees that the Series 1996-1 Invested Amount may be increased by increasing each Purchaser's Series 1996-1 Purchaser Invested Amount (an "INCREASE"), up to an amount not exceeding each Purchaser's Commitment, upon the request of the Servicer or the Company on behalf of the Trust (each date on which an increase in the Series 1996-1 Invested Amount occurs hereunder being herein referred to as the "INCREASE DATE" applicable to such Increase); PROVIDED, HOWEVER, that the Servicer or the Company, as the case may be, shall have given the Administrative Agent (with a copy to the Trustee) irrevocable written notice (effective upon receipt), substantially in the form of Exhibit F hereto, of such request no later than (i) if the Initial Series 1996-1 Invested Amount or Increase Amount is to be priced solely with reference to the ABR, on or prior to 1:00 p.m., New York City time, on the Issuance Date or such Increase Date, as the case may be, or (ii) if all or a portion of the Initial Series 1996-1 Invested Amount or Increase Amount is to be allocated to a Eurodollar Tranche, 1:00 p.m., New York City time, three Business Days prior to the Issuance Date or such Increase Date, as the case may be; PROVIDED, FURTHER, that the provisions of this subsection shall not restrict the allocations of Collections pursuant to Article III. Such notice shall state (x) the Issuance Date or the Increase Date, as the case may be; (y) the Initial Series 1996-1 Invested Amount or the proposed amount of such Increase (the "INCREASE AMOUNT"), as the case may be; and (z) what portions thereof will be allocated to a Eurodollar Tranche and the Floating Tranche. No Purchaser shall be obligated to fund any such Increase, unless concurrently with any such Increase in the Series 1996-1 Invested Amount, the Series 1996-1 Subordinated Certificate Amount shall be increased by an amount (the "SERIES 1996-1 SUBORDINATED CERTIFICATE INCREASE AMOUNT") such that after giving effect to such increase, the Series 1996-1 Adjusted Invested Amount PLUS the Series 1996-1 Subordinated Certificate Amount equals the Series 1996-1 Target Receivables Amount. II(f) The Purchasers shall not be required to make the initial purchase of VFC Certificates on the Issuance Date or to increase their respective Series 1996-1 Purchaser Invested Amounts on any Increase Date hereunder unless: (i) the related aggregate initial purchase amount or Increase Amount is equal to (A) in the case of a Floating Tranche, $100,000 or an integral multiple of $100,000 in excess thereof and (B) in the case of a Eurodollar Tranche, $500,000 or an integral multiple of $500,000 in excess thereof; (ii) after giving effect to the initial purchase amount or Increase Amount, (A) the Series 1996-1 Invested Amount (calculated without regard to clauses (d) and (e) of the definition of Series 1996-1 Invested Amount) would not exceed the Maximum Commitment Amount on the Issuance Date or such Increase Date, as the case may be, and (B) the Series 1996-1 Allocated Receivables Amount would not be less than the Series 1996-1 Target Receivables Amount on the Issuance Date or such Increase Date, as the case may be; 23 (iii) no Early Amortization Event or Potential Early Amortization Event shall have occurred and be continuing; (iv) all of the representations and warranties made by each of the Company, the Servicer, each Sub-Servicer and each Seller in each Transaction Document to which it is a party are true and correct in all material respects on and as of the Issuance Date or such Increase Date, as the case may be, as if made on and as of such date; and (v) no event shall have occurred (i) since April 29, 1995 with respect to RS and its Subsidiaries (other than US Foodservice and its Subsidiaries) or (ii) since December 31, 1995 with respect to US Foodservice and its Subsidiaries, which would result in a Material Adverse Effect with respect to RS and its Subsidiaries taken as a whole. The Company's acceptance of funds in connection with (x) the Purchasers' initial purchase of VFC Certificates on the Issuance Date and (y) each Increase occurring on any Increase Date shall constitute a representation and warranty by the Company to the Purchasers as of the Issuance Date or such Increase Date, as the case may be, that all of the conditions contained in this subsection 2.5(b) have been satisfied. (b) After receipt by the Administrative Agent of the notice required by subsection 2.5(a) from the Servicer or the Company on behalf of the Trust, the Administrative Agent shall, so long as the conditions set forth in subsections 2.5(a) and (b) are satisfied, promptly provide telephonic notice to each Purchaser of the Increase Date and of the portion of the Increase Amount allocable to such Purchaser (which shall equal such Purchaser's Commitment Percentage of the Increase Amount). The Servicer shall promptly notify the Company of the Increase Date and the amount of the Series 1996-1 Subordinated Certificate Increase Amount. Each Purchaser agrees to pay in immediately available funds such Purchaser's Commitment Percentage of each Increase on the related Increase Date to the Administrative Agent for payment to the Trust for deposit in the Series 1996-1 Principal Collection Sub-subaccount. II.6. PROCEDURE FOR DECREASING THE SERIES 1996-1 INVESTED AMOUNT; OPTIONAL TERMINATION. (a) On any Business Day during the Series 1996-1 Revolving Period or the Series 1996-1 Amortization Period (except for Distribution Dates during the Series 1996-1 Amortization Period (which shall be governed by subsection 3A.6(c))), upon the written request of the Servicer or the Company on behalf of the Trust, the portion of the Series 1996-1 Invested Amount not allocated to a Eurodollar Tranche on such day may be reduced (a "DECREASE") by the distribution by the Trustee to the Administrative Agent for the PRO RATA benefit of the Purchasers in accordance with their Commitment Percentages of funds on deposit in the Series 1996-1 Principal Collection Sub- subaccount on such day in an amount not to exceed the amount of such funds on deposit on such day; PROVIDED that the Servicer shall have given the Administrative Agent (with a copy to the Trustee) irrevocable written notice (effective upon receipt), prior to 1:00 p.m., New 24 York City time, on the Business Day of such Decrease and which notice shall state the amount of such Decrease; PROVIDED, FURTHER, that such Decrease shall be in an amount equal to $100,000 and integral multiples of $100,000 in excess thereof; PROVIDED STILL FURTHER, however, that no prepayment of any Eurodollar Tranche prior to the termination of a Eurodollar Period may occur unless, concurrently with such prepayment, the Company or the Servicer shall have paid to the Purchasers any amounts due and payable pursuant to Section 7.4. (a) Simultaneously with any such Decrease during the Series 1996-1 Revolving Period, the Series 1996-1 Subordinated Certificate Amount shall be reduced by an amount (the "SERIES 1996-1 SUBORDINATED CERTIFICATE REDUCTION AMOUNT") such that the Series 1996-1 Subordinated Certificate Amount shall equal the Series 1996-1 Required Subordinated Amount after giving effect to such Decrease. During the Series 1996-1 Revolving Period, after the distribution described in subsection (a) above has been made, and the Series 1996-1 Subordinated Certificate Amount shall have been reduced by the Series 1996-1 Subordinated Certificate Reduction Amount, a distribution shall be made to the holder of the Series 1996-1 Subordinated Certificate out of remaining funds on deposit in the Series 1996-1 Principal Collection Sub-subaccount in an amount equal to the lesser of (x) the Series 1996-1 Subordinated Certificate Reduction Amount and (y) the amount of such remaining funds on deposit in the Series 1996-1 Principal Collection Sub-subaccount. (b) Any reduction in the Series 1996-1 Invested Amount on any Business Day shall be allocated first to reduce the Unallocated Balance. (c)(i) On any Business Day unless the Scheduled Revolving Termination Date, an Early Amortization Event or a Potential Early Amortization Event shall have occurred and be continuing, the Company shall have the right to deliver an irrevocable written notice (an "OPTIONAL TERMINATION NOTICE") to the Trustee and the Servicer in which the Company declares that the Series 1996-1 Revolving Period shall terminate on the date (the "OPTIONAL TERMINATION DATE") set forth in such notice (which date, in any event, shall not be less than 10 days from the date on which such notice is delivered). (i) From and after the Optional Termination Date, the Series 1996-1 Amortization Period shall commence for all purposes under this Agreement and the other Transaction Documents. The Trustee shall give prompt written notice of its receipt of an Optional Termination Notice to the Purchasers and each Rating Agency. II.7. REDUCTIONS OF THE COMMITMENTS. (a) On any Business Day during the Series 1996-1 Revolving Period, the Company, on behalf of the Trust, may, upon three Business Days' prior written notice to the Administrative Agent (effective upon receipt) (with copies to the Servicer, the other Agents and the Trustee) reduce or terminate the Commitments (a "COMMITMENT REDUCTION") in an aggregate amount equal to $5,000,000 or a whole multiple of $1,000,000 in excess thereof; PROVIDED that no such termination or reduction shall be permitted if, after giving effect thereto and to any reduction in the Series 1996-1 Invested Amount (calculated 25 without regard to clauses (d) and (e) of the definition of the Series 1996-1 Purchaser Invested Amount) on such date, the Series 1996-1 Invested Amount would exceed the Aggregate Commitment Amount then in effect. Each Purchaser's Commitment shall be reduced by such Purchaser's Commitment Percentage of the amount of such Commitment Reduction. (a) Once reduced, the Commitments may not be subsequently reinstated. Upon effectiveness of any such reduction, the Administrative Agent shall prepare a revised Schedule 1 to reflect the reduced Commitment of each Purchaser and Schedule 1 of this Supplement shall be deemed to be automatically superseded by such revised Schedule 1. The Administrative Agent shall distribute such revised Schedule 1 to the Company, the Servicer, the Trustee and each Purchaser. II.8. INTEREST; COMMITMENT FEE. (a) Interest shall be payable on the VFC Certificates on each Distribution Date pursuant to subsection 3A.6(a). II(e) The Trustee (acting at the written direction of the Servicer upon which the Trustee may conclusively rely) shall pay to the Administrative Agent, for the PRO RATA account of the Purchasers in accordance with their respective Commitment Percentages, on each Distribution Date, a commitment fee with respect to each Accrual Period or portion thereof ending on such date (the "COMMITMENT FEE") during the Series 1996-1 Revolving Period at a rate equal to .25% per annum of the average daily excess of the Aggregate Commitment Amount OVER the average Series 1996-1 Invested Amount (based on the Series 1996-1 Purchaser Invested Amounts calculated without regard to clauses (d) and (e) of the definition thereof) during such Accrual Period. The Commitment Fee shall be payable (a) monthly in arrears on each Distribution Date, (b) on the Commitment Termination Date and (c) on the Optional Termination Date. To the extent that funds on deposit in the Series 1996-1 Accrued Interest Sub-subaccount and the Series 1996-1 Non-Principal Collection Sub-subaccount at any such date are insufficient to pay the Commitment Fee due on such date, the Servicer shall so notify the Company and the Company shall immediately pay the Administrative Agent the amount of any such deficiency. (b) Calculations of per annum rates and fees under this Supplement shall be made on the basis of a 365- (or 366-, as the case may be) day year with respect to Commitment Fees, other fees, and, except with respect to Eurodollar Tranches, interest rates. Each determination of the Eurodollar Rate by the Administrative Agent shall be conclusive and binding upon each of the parties hereto in the absence of manifest error. II.9. INDEMNIFICATION BY THE COMPANY AND THE SERVICER. (a) The Company agrees to indemnify and hold harmless each Agent, each Purchaser and each of their respective officers, directors, agents and employees (each, a "COMPANY INDEMNIFIED PERSON") from and against any loss, liability, expense, damage or injury suffered or sustained by (a "CLAIM") such Company indemnified person by reason of (i) any acts, omissions or alleged acts or omissions arising out of, or relating to, activities of the Company pursuant to any Pooling and Servicing Agreement or the other Transaction Documents to which it is a party, (ii) a breach of any representation or warranty 26 made or deemed made by the Company (or any of its officers) in any Pooling and Servicing Agreement or other Transaction Document or (iii) a failure by the Company to comply with any applicable law or regulation or to perform its covenants, agreements, duties or obligations required to be performed or observed by it in accordance with the provisions of any Pooling and Servicing Agreement or the other Transaction Documents, including, but not limited to, any judgment, award, settlement, reasonable attorneys' fees and other reasonable costs or expenses incurred in connection with the defense of any actual or threatened action, proceeding or claim, except to the extent such loss, liability, expense, damage or injury resulted from the gross negligence, bad faith or wilful misconduct of such Company indemnified person or its officers, directors, agents, principals, employees or employers; PROVIDED that any payments made by the Company pursuant to this subsection shall be made solely from funds available to the Company which are not otherwise needed to be applied to the payment of any amounts (other than amounts payable to the Company) pursuant to any Pooling and Servicing Agreements, shall be non-recourse other than with respect to proceeds in excess of the proceeds needed to make such payment, and shall not constitute a claim against the Company to the extent that insufficient proceeds exist to make such payment. (b) The Servicer agrees to indemnify and hold harmless each Agent, each Purchaser and each of their respective officers, directors, agents and employees (each, a "SERVICER INDEMNIFIED PERSON") from and against any Claim by reason of (i) any acts, omissions or alleged acts or omissions arising out of, or relating to, activities of the Servicer pursuant to any Pooling and Servicing Agreement or the other Transaction Documents to which it is a party, (ii) a breach of any representation or warranty made or deemed made by the Servicer (or any of its officers) in any Pooling and Servicing Agreement or other Transaction Document or (c) a failure by the Servicer to comply with any applicable law or regulation or to perform its covenants, agreements, duties or obligations required to be performed or observed by it in accordance with the provisions of any Pooling and Servicing Agreement or the other Transaction Documents, including, but not limited to, any judgment, award, settlement, reasonable attorneys' fees and other reasonable costs or expenses incurred in connection with the defense of any actual or threatened action, proceeding or claim, except to the extent such loss, liability, expense, damage or injury resulted from the gross negligence, bad faith or wilful misconduct of such Servicer indemnified person or its officers, directors, agents, principals, employees or employers. 27 III ARTICLE III OF THE AGREEMENT Section 3.1 of the Agreement and each other section of Article III of the Agreement relating to another Series shall read in their entirety as provided in the Agreement. Article III of the Agreement (except for Section 3.1 thereof and any portion thereof relating to another Series) shall read in its entirety as follows and shall be exclusively applicable to the Series 1996-1 Certificates: SECTION 3A.2. ESTABLISHMENT OF TRUST ACCOUNTS. (a) The Trustee shall cause to be established and maintained in the name of the Trustee, on behalf of the Trust, (i) for the benefit of the Purchasers and (ii) in the case of clauses (A), (B) and (C) below, for the benefit, subject to the prior and senior interest of the Purchasers, of the holder of the Series 1996-1 Subordinated Certificate, (A) a subaccount of the Collection Account (the "SERIES 1996-1 COLLECTION SUBACCOUNT"), which subaccount is the Series Collection Subaccount with respect to Series 1996-1; (B) two subaccounts of the Series 1996-1 Collection Subaccount: (1) the Series 1996-1 Principal Collection Sub- subaccount and (2) the Series 1996-1 Non-Principal Collection Sub-subaccount (respectively, the "SERIES 1996-1 PRINCIPAL COLLECTION SUB-SUBACCOUNT" and the "SERIES 1996-1 NON-PRINCIPAL COLLECTION SUB-SUBACCOUNT"), (C) a subaccount of the Series 1996-1 Principal Collection Sub-subaccount (the "SERIES 1996-1 COLLECTION SUBORDINATED SUB-SUBACCOUNT"), and (D) a subaccount of the Series 1996-1 Non-Principal Collection Sub-subaccount (the "SERIES 1996-1 ACCRUED INTEREST SUB-SUBACCOUNT"; all accounts established pursuant to this subsection 3A.2(a) and listed on Schedule 2, collectively, the "TRUST ACCOUNTS"), each Trust Account to bear a designation indicating that the funds deposited therein are held for the benefit of the Persons (and, for each such Person, to the extent) set forth in clauses (i) and (ii) above. The Trustee, on behalf of the Certificateholders, shall possess all right, title and interest in all funds from time to time on deposit in, and all Eligible Investments credited to, the Trust Accounts and in all proceeds thereof. The Trust Accounts shall be under the sole dominion and control of the Trustee for the exclusive benefit of the Persons (and, for each such Person, to the extent) set forth in clauses (i) and (ii) above. (b) All Eligible Investments in the Trust Accounts shall be held by the Trustee, on behalf of the Certificateholders, for the exclusive benefit of the Purchasers and, subject to the prior interest of the Purchasers, the holder of the Series 1996-1 Subordinated Certificate; PROVIDED, HOWEVER, that funds on deposit in a Trust Account which is a Sub-subaccount of a Collection Account may, at the direction of the Company, be invested together with funds held in other Sub-subaccounts of the Collection Account. After giving effect to any distribution to the Company pursuant to subsection 3A.3(b), amounts on deposit and available for investment in the Series 1996-1 Principal Collection Sub- subaccount and the Series 1996-1 Collection Subordinated Sub-subaccount shall be invested by the Trustee at the written direction of the Company in Eligible Investments that mature, or that are payable or redeemable upon demand of the holder thereof, (i) in the case of any such investment made during the Series 1996-1 Revolving 28 Period, on or prior to the next Business Day and (ii) in the case of any such investment made during the Series 1996-1 Amortization Period, on or prior to the Business Day immediately preceding the next Distribution Date. Amounts on deposit and available for investment in the Series 1996-1 Non-Principal Collection Sub-subaccount and the Series 1996-1 Accrued Interest Sub-subaccount shall be invested by the Trustee at the written direction of the Company in Eligible Investments that mature, or that are payable or redeemable upon demand of the holder thereof, on or prior to the Business Day immediately preceding the next Distribution Date. As of the Business Day immediately preceding such next Distribution Date, (x) all interest and other investment earnings (net of losses and investment expenses) on funds deposited in the Series 1996-1 Accrued Interest Sub-subaccount shall be deposited in the Series 1996-1 Non-Principal Collection Sub-subaccount and (y) all interest and investment earnings (net of losses and investment expenses) on funds deposited in the Series 1996-1 Principal Collection Sub-subaccount and the Series 1996-1 Collection Subordinated Sub-subaccount shall be deposited in the Series 1996-1 Non- Principal Collection Sub-subaccount. SECTION 3A.3. DAILY ALLOCATIONS. In accordance with the written direction of the Servicer, upon which the Trustee may conclusively rely: (a) The portion of the Aggregate Daily Collections allocated to the Series 1996-1 Certificates pursuant to Article III of the Agreement shall be allocated and distributed as set forth in this Article III by the Trustee as follows: (i) on each Business Day, an amount equal to the Accrued Expense Amount for such day (or, during the Series 1996-1 Revolving Period, such greater amount as the Company may request in writing) shall be transferred from the Series 1996-1 Collection Subaccount to the Series 1996-1 Non- Principal Collection Sub-subaccount; PROVIDED, HOWEVER, that during the Series 1996-1 Amortization Period, to the extent of funds on deposit (after giving effect to deposits on such Business Day) in the Series 1996-1 Collection Subordinated Sub-subaccount, such transfer shall be made from funds on deposit in the Series 1996-1 Collection Subordinated Sub- subaccount; (ii) following the transfers pursuant to clause (i) above, during the Series 1996-1 Revolving Period, any remaining funds on deposit in the Series 1996-1 Collection Subaccount shall be transferred by the Trustee to the Series 1996-1 Principal Collection Sub-subaccount; and (iii) following the transfers made pursuant to clause (i) above, during the Series 1996-1 Amortization Period, any funds on deposit in the Series 1996-1 Collection Subaccount shall be allocated and transferred by the Trustee as follows: (A) an amount equal to the sum of (I) the product of (x) the Series 1996-1 Collections, TIMES (y) the Ineligible Receivables Percentage, PLUS (II) the product of (x) the Series 1996-1 Collections, TIMES (y) the Eligible Receivables Percentage, 29 TIMES (z) the Series 1996-1 Subordinated Percentage, shall be transferred to the Series 1996-1 Collection Subordinated Sub- subaccount; and (B) following the transfer made pursuant to clause (A) above, any remaining funds on deposit in the Series 1996-1 Collection Subaccount shall be transferred to the Series 1996-1 Principal Collection Sub-subaccount. (b)(i) On each Business Day during the Series 1996-1 Revolving Period (including Distribution Dates), after giving effect to (x) all allocations of Aggregate Daily Collections on such Business Day and (y) any deposit resulting from an Increase, if any, pursuant to subsection 2.5(c) on such Business Day, amounts on deposit in the Series 1996-1 Principal Collection Sub-subaccount shall be distributed by the Trustee to the Company (but only to the extent that the Trustee has received a Daily Report which reflects the receipt of the Collections on deposit therein) in accordance with directions contained in the Daily Report; PROVIDED that such distribution shall be made only if no Early Amortization Event or Potential Early Amortization Event relating to an Early Amortization Event set forth in subsections (a), (d) (but only with respect to a Servicer Default set forth in subsection 6.1(e) of the Servicing Agreement), (g) or (j) of Section 5.1 of this Supplement has occurred and is continuing and only to the extent that, if after giving effect to such distribution, the Series 1996-1 Target Receivables Amount would not exceed the Series 1996-1 Allocated Receivables Amount; PROVIDED FURTHER that if the Company or the Servicer, on behalf of the Company, shall have given the Administrative Agent irrevocable written notice (effective upon receipt) at least one Business Day prior to such day (or, in the case of the Floating Tranche, notice may be given on such day), the Company or the Servicer may instruct the Trustee in writing (specifying the related amount) to withdraw all or a portion of such amounts on deposit in the Series 1996-1 Principal Collection Sub-subaccount and apply such withdrawn amounts toward the reduction of the Series 1996-1 Invested Amount and the Series 1996-1 Subordinated Certificate Amount in accordance with Section 2.6. Amounts distributed to the Company hereunder shall be deemed to be paid first from Collections received directly by the Servicer and second from Collections received in the Lockboxes. (i) On each Business Day during the Series 1996-1 Amortization Period (including Distribution Dates), funds deposited in the Series 1996-1 Principal Collection Sub-subaccount and the Series 1996-1 Collection Subordinated Sub- subaccount shall be invested in Eligible Investments that mature on or prior to the Business Day immediately preceding the next Distribution Date and shall be distributed on such Distribution Date in accordance with subsection 3A.6(c). No amounts on deposit in the Series 1996-1 Principal Collection Sub-subaccount or the Series 1996-1 Collection Subordinated Sub-subaccount shall be distributed by the Trustee to the Company or the holder of the Series 1996-1 Subordinated Certificate during the Series 1996-1 Amortization Period. (c) On each Business Day, an amount equal to the Daily Interest Deposit for such day shall be transferred by the Trustee from the Series 1996-1 Non-Principal Collection Sub-subaccount to the Series 1996-1 Accrued Interest Sub-subaccount. 30 (d) On each Business Day during the Series 1996-1 Amortization Period (including Distribution Dates), after giving effect to the transfers pursuant to subsection 3A.3(a), the Trustee shall also transfer from the Series 1996-1 Collection Subordinated Sub-subaccount to the Series 1996-1 Principal Collection Sub-subaccount an amount equal to the lesser of (i) the sum of (A) the product of (1) the Series 1996-1 Non-Subordinated Percentage, TIMES (2) the Invested Percentage, TIMES (3) the Eligible Receivables Percentage, TIMES (4) the excess of (x) the sum of Dilution Adjustments arising or identified, and the outstanding Principal Amount of Ineligible Receivables for which the Repurchase Obligation Date has occurred, in each case since the preceding Business Day, OVER (y) the amount specified in the Daily Report as having been deposited by the Company in respect of such Dilution Adjustments and Ineligible Receivables (either from the deposit in the Collection Account of cash payments made in respect thereof by the Sellers or from other cash Collections in respect thereof) in the Series 1996-1 Principal Collection Sub-subaccount since the preceding Business Day, (B) the product of (1) the Series 1996-1 Non- Subordinated Percentage, TIMES (2) the Invested Percentage, TIMES (3) the Eligible Receivables Percentage, TIMES (4) the Principal Amount of Receivables which became Defaulted Receivables since the preceding Business Day, and (C) (x) the Series 1996-1 Unreimbursed Amount (as defined in the following sentence) for the prior Business Day MINUS (y) the amount specified in the Daily Report as having been deposited by the Company on such Business Day in respect of such Series 1996-1 Unreimbursed Amount (either from the deposit in the Collection Account of cash payments made in respect thereof by the Sellers or from other cash Collections in respect thereof) in the Series 1996-1 Principal Collection Sub-subaccount and (ii) the amount on deposit in the Series 1996-1 Collection Subordinated Sub-subaccount on such Business Day. If on any Business Day the amount calculated pursuant to clause (i) exceeds the amount calculated pursuant to clause (ii), such excess shall be referred to as the "SERIES 1996-1 UNREIMBURSED AMOUNT" for such Business Day. (e) In addition to the foregoing, on the Distribution Date during the Series 1996-1 Amortization Period following the Settlement Report Date on which (i) the Series 1996-1 Invested Amount has been reduced to an amount which is equal to or less than the Clean-Up Call Amount and (ii) the sum of (x) the amount on deposit in the Series 1996-1 Collection Subordinated Sub-subaccount, PLUS (y) the amount on deposit in the Series 1996-1 Principal Collection Sub- subaccount, equals or exceeds the Clean-Up Call Repurchase Price, the Trustee shall transfer from the Series 1996-1 Collection Subordinated Sub-subaccount to the Series 1996-1 Principal Collection Sub-subaccount (which amount shall be used to pay the Clean-Up Call Repurchase Price in full) the lesser of (i) the Clean-Up Call Repurchase Price MINUS the amount on deposit in the Series 1996-1 Principal Collection Sub-subaccount on such day and (ii) the amount on deposit in the Series 1996-1 Collection Subordinated Sub-subaccount. In addition, on the Distribution Date during the Series 1996-1 Amortization Period on which the Company has exercised its clean-up option pursuant to Section 9.2 of the Pooling Agreement to repurchase the Series 1996-1 Certificates, the Trustee shall, upon the written request of the Company, transfer from the Series 1996-1 Collection Subordinated Sub-subaccount to the Series 1996-1 Principal Collection Sub- subaccount (which amount shall be applied towards payment of the Clean-Up Call 31 Repurchase Price) the lesser of (i) the Series 1996-1 Invested Amount MINUS the amount on deposit in the Series 1996-1 Principal Collection Sub-subaccount on such day and (ii) the amount on deposit in the Series 1996-1 Collection Subordinated Sub-subaccount. Further, (i) if the Amortization Period has commenced with respect to all Outstanding Series, then, on the date that is six months after the latest date on which the last Amortization Period for an Outstanding Series commenced and (ii) if the Receivables have been disposed of pursuant to subsection 7.2(b) of the Agreement, on the Distribution Date following the date of such disposition, the Trustee shall transfer from the Series 1996-1 Collection Subordinated Sub-subaccount to the Series 1996-1 Principal Collection Sub-subaccount (which amount shall be applied towards payment of the Series 1996-1 Invested Amount) the remaining amount on deposit in the Series 1996-1 Collection Subordinated Sub-subaccount. The provisions of the foregoing paragraph (d) and this paragraph (e) shall in no event be construed to affect any other financial obligations of any Seller, any Servicing Party or the Company under any of the Transaction Documents. (f) The allocations to be made pursuant to this Section 3A.3 are subject to the provisions of Sections 2.5, 2.6, 7.2 and 9.1 of the Agreement. SECTION 3A.4. DETERMINATION OF INTEREST. (a) (i) The amount of interest distributable with respect to the VFC Certificates ("SERIES 1996-1 MONTHLY INTEREST") on each Distribution Date shall be the amount of Daily Interest Expense accrued during the Accrual Period ending on such Distribution Date. (ii) Following any change in the amount of any Eurodollar Tranche or Floating Tranche during an Accrual Period, the Series 1996-1 Monthly Interest shall be calculated with respect to such changed amount for the number of days in the Accrual Period during which such changed amount is outstanding. (iii) If the Certificate Rate changes during any Accrual Period, the Servicer shall amend the Monthly Settlement Statement to reflect the adjustment in the Series 1996-1 Monthly Interest for such Accrual Period caused by such change and any consequent adjustments and the Servicer shall also provide written notification to the Trustee of any such change in the Certificate Rate. Any amendment to the Monthly Settlement Statement pursuant to this subsection 3A.4(a)(iii) shall be completed by 1:00 p.m. on the day preceding the next Settlement Report Date. (b) On each Distribution Date, the Servicer shall determine the excess, if any (the "INTEREST SHORTFALL"), of (i) the aggregate Series 1996-1 Monthly Interest for the Accrual Period ending on such Distribution Date OVER (ii) the amount which will be available to be distributed to the Purchasers on such Distribution Date in respect thereof pursuant to this Supplement. If the Interest Shortfall with respect to any Distribution Date is greater than zero, an additional amount ("ADDITIONAL INTEREST") equal to the product of (A) the number of days until such Interest Shortfall shall be repaid DIVIDED BY 365 (or 366, as the case may be), (B) the ABR PLUS 2.0% and (C) such Interest Shortfall (or the portion thereof which has not been paid to the Purchasers) shall be 32 payable as provided herein with respect to the VFC Certificates on each Distribution Date following such Distribution Date, to but excluding the Distribution Date on which such Interest Shortfall is paid to the VFC Certificateholders. (c) On any Business Day, the Company may, subject to subsection 3A.4(e), elect to allocate all or any portion of the Available Pricing Amount to one or more Eurodollar Tranches with Eurodollar Periods commencing on such Business Day by giving the Administrative Agent irrevocable written or telephonic (confirmed in writing) notice thereof, which notice must be received by the Administrative Agent prior to 1:00 p.m., New York City time, three Business Days prior to such Business Day. Such notice shall specify (i) the applicable Business Day, (ii) the Eurodollar Period for each Eurodollar Tranche to which a portion of the Available Pricing Amount is to be allocated and (iii) the portion of the Available Pricing Amount being allocated to each such Eurodollar Tranche. Promptly upon receipt of each such notice the Administrative Agent shall notify each Purchaser of the contents thereof. If the Administrative Agent shall not have received timely notice as aforesaid with respect to all or any portion of the Available Pricing Amount, the Monthly Interest Payment on such amount shall be calculated by reference to the ABR. (d) Any reduction in the Series 1996-1 Invested Amount on any Business Day shall be allocated in the following order of priority: FIRST, to reduce the Unallocated Balance, as appropriate; and SECOND, to reduce the portion of the Series 1996-1 Invested Amount allocated to Eurodollar Tranches in such order as the Company may select in order to minimize costs payable pursuant to Section 7.4. (e) Notwithstanding anything to the contrary contained in this Section 3A.4, (i) the portion of the Series 1996-1 Invested Amount allocable to each Eurodollar Tranche must be in an amount equal to $500,000 or an integral multiple of $500,000 in excess thereof; (ii) no more than five Eurodollar Tranches shall be outstanding at any one time; (iii) after the occurrence and during the continuance of any Early Amortization Event or Potential Early Amortization Event relating to an Early Amortization Event set forth in subsections (a), (d) (but only with respect to a Servicer Default set forth in subsection 6.1(e) of the Servicing Agreement), (e) or (j) of Section 5.1 of this Supplement, the Company may not elect to allocate any portion of the Available Pricing Amount to a Eurodollar Tranche; and (iv) after the end of the Series 1996-1 Revolving Period, the Company may not select any Eurodollar Period that does not end on or prior to the next succeeding Distribution Date. SECTION 3A.5. DETERMINATION OF SERIES 1996-1 MONTHLY PRINCIPAL. (a) PAYMENTS OF SERIES 1996-1 PRINCIPAL. The amount (the "SERIES 1996-1 MONTHLY PRINCIPAL PAYMENT") distributable from the Series 1996-1 Principal Collection Sub-subaccount on each Distribution Date during the Series 1996-1 Amortization Period shall be equal to the amount on 33 deposit in such account on the immediately preceding Settlement Report Date; PROVIDED, HOWEVER, that the Series 1996-1 Monthly Principal Payment on any Distribution Date shall not exceed the Series 1996-1 Invested Amount on such Distribution Date after giving effect to the reductions and increases pursuant to paragraphs (b) and (c) below. Further, on any other Business Day during the Series 1996-1 Amortization Period, funds may be distributed from the Series 1996-1 Principal Collection Sub-subaccount to the Purchasers in accordance with Section 2.6 of this Supplement. (b) REDUCTIONS TO SERIES 1996-1 PRINCIPAL. If, on any Special Allocation Settlement Report Date, the Series 1996-1 Allocable Charged-Off Amount is greater than zero for the related Settlement Period, the Trustee shall (in accordance with written directions from the Servicer, upon which the Trustee may conclusively rely) make the following applications of such amounts in the following order of priority: (i) the Series 1996-1 Required Subordinated Amount shall be reduced (but not below zero) by an amount equal to the Series 1996-1 Allocable Charged-Off Amount (which shall also be reduced by the amount so applied); (ii) then, to the extent that the Series 1996-1 Allocable Charged-Off Amount is greater than zero following the application in clause (i) above, the Series 1996-1 Invested Amount shall be reduced (but not below zero) by such remaining Series 1996-1 Allocable Charged-Off Amount (which shall also be reduced by the amount so applied). (c) INCREASES TO SERIES 1996-1 PRINCIPAL. If, on any Special Allocation Settlement Report Date, the Series 1996-1 Allocable Recoveries Amount is greater than zero for the related Settlement Period, the Trustee shall (in accordance with written directions from the Servicer upon which the Trustee may conclusively rely) make the following applications (after giving effect to the applications in paragraph (b) of such amount in the following order of priority): (i) the Series 1996-1 Invested Amount shall be increased (but only to the extent of any previous reductions of the Series 1996-1 Invested Amount pursuant to subsection 3A.5(b)(ii)) by the amount of the Series 1996-1 Allocable Recoveries Amount (which shall also be reduced by the amount so applied); (ii) then, to the extent that the Series 1996-1 Allocable Recoveries Amount is greater than zero following the applications in clause (i) above, the Series 1996-1 Required Subordinated Amount shall be increased (but only to the extent of any previous reductions of the Series 1996-1 Required Subordinated Amount pursuant to subsection 3A.5(b)(i)) by such remaining Series 1996-1 Allocable Recoveries Amount (which shall also be reduced by the amount so applied). SECTION 3A.6. APPLICATIONS. (a) On each Distribution Date, the Trustee shall distribute to the Purchasers, from amounts on deposit in the Series 1996-1 Accrued Interest Sub- 34 subaccount, an amount equal to the Series 1996-1 Monthly Interest payable on such Distribution Date (such amount, the "MONTHLY INTEREST PAYMENT"), PLUS the amount of any Monthly Interest Payment previously due but not distributed to the Purchasers on a prior Distribution Date, PLUS the amount of any Additional Interest for such Distribution Date and any Additional Interest previously due but not distributed to the Purchasers on a prior Distribution Date. (b) On each Distribution Date, the Trustee shall apply funds on deposit in the Series 1996-1 Non-Principal Collection Sub-subaccount in the following order of priority to the extent funds are available: (i) during the Series 1996-1 Revolving Period, an amount equal to the Commitment Fee for the Accrual Period ending on such Distribution Date shall be withdrawn from the Series 1996-1 Non-Principal Collection Sub-subaccount by the Trustee and paid to the Administrative Agent, for the PRO RATA account of the Purchasers in accordance with their respective Commitment Percentages; (ii) an amount equal to the Series 1996-1 Monthly Servicing Fee for the Accrual Period ending on such Distribution Date shall be withdrawn from the Series 1996-1 Non-Principal Collection Sub-subaccount by the Trustee and paid to the Servicer (less any amounts payable to the Trustee pursuant to Section 8.5 of the Agreement, which shall be paid to the Trustee) or, if Rykoff-Sexton Funding Corporation or any Affiliate thereof is not the Servicer, the Series 1996-1 Monthly Servicing Fee shall be paid to the Person acting as Successor Servicer; and (iii) an amount equal to any unpaid Program Costs due and payable shall be withdrawn from the Series 1996-1 Non-Principal Collection Sub- subaccount by the Trustee and paid to the Persons owed such amounts. Any remaining amounts on deposit in the Series 1996-1 Non-Principal Collection Sub-subaccount (in excess of the Accrued Expense Amount as of such day) not allocated pursuant to clauses (i), (ii) and (iii) above shall be paid to the holder of the Series 1996-1 Subordinated Certificate; PROVIDED, HOWEVER, that during the Series 1996-1 Amortization Period, such remaining amounts shall be deposited in the Series 1996-1 Principal Collection Sub-subaccount for distribution in accordance with subsection 3A.6(c). (c) During the Series 1996-1 Amortization Period, the Trustee shall apply, on each Distribution Date, amounts on deposit in the Series 1996-1 Principal Collection Sub-subaccount and, to the extent set forth in clauses (ii) and (iii) below, in the Series 1996-1 Collection Subordinated Sub-subaccount in the following order of priority: (i) an amount equal to the Series 1996-1 Monthly Principal Payment for such Distribution Date shall be distributed from the Series 1996-1 Principal Collection Sub-subaccount to the Purchasers; and 35 (ii) if, following the repayment in full of the Series 1996-1 Invested Amount, any amounts are owed to the Trustee or any other Person, on account of its expenses, advances and disbursements incurred in respect of the performance of its responsibilities hereunder or as Successor Servicer, such amounts shall be transferred from the Series 1996-1 Principal Collection Sub-subaccount and the Series 1996-1 Collection Subordinated Sub-subaccount and paid to the Trustee or such other Person; and (iii) following the repayment in full of the Series 1996-1 Invested Amount and of all of the amounts set forth in clause (ii), the remaining amount on deposit in the Series 1996-1 Principal Collection Sub- subaccount and the Series 1996-1 Collection Subordinated Sub-subaccount on such Distribution Date, if any, shall be distributed to the holder of the Series 1996-1 Subordinated Certificate. IV DISTRIBUTIONS AND REPORTS Article IV of the Agreement (except for any portion thereof relating to another Series) shall read in its entirety as follows and the following shall be exclusively applicable to the VFC Certificates: (a) On each Distribution Date, the Trustee shall distribute to each Purchaser an amount equal to the product of (i) the amount to be distributed to the Purchasers pursuant to Article III and (ii) such Purchaser's Commitment Percentage. IV(b) All allocations and distributions hereunder shall be in accordance with the Daily Report and the Monthly Settlement Statement and shall be made in accordance with the provisions of Section 11.4 hereof and subject to Section 3.1(h) of the Agreement. SECTION 4A.2. DAILY REPORTS. The Servicer shall provide each Agent and the Trustee with a Daily Report in accordance with subsection 4.2(a) of the Servicing Agreement. The Administrative Agent shall make copies of the Daily Report available to the Purchasers at their reasonable request at the Administrative Agent's office in [Chicago, Illinois]. SECTION 4A.3. STATEMENTS AND NOTICES. (a) MONTHLY SETTLEMENT STATEMENTS. On each Settlement Report Date, the Servicer shall deliver to the Trustee and each Agent (commencing with the Settlement Report Date occurring on June 15, 1996) a Monthly Settlement Statement in the Form of Exhibit E setting forth, among other things, the Loss Reserve Ratio, the Dilution Reserve Ratio, the Minimum Ratio, the Carrying Cost Reserve Ratio and the Servicing Reserve Ratio and the components of the calculation thereof, each as recalculated for the period until the next succeeding Settlement Report Date. The Administrative Agent shall forward a copy 36 of each Monthly Settlement Statement to any Purchaser upon request by such Purchaser. The Company and the Servicer will deliver copies of all notices, reports, statements and other documents delivered by it pursuant to the Pooling and Servicing Agreements to each Rating Agency. A copy of any such items may be obtained by any Certificateholder upon a written request delivered to the Trustee at the Corporate Trust Office. (b) ANNUAL CERTIFICATEHOLDERS' TAX STATEMENT. On or before April 1 of each calendar year (or such earlier date as required by applicable law), beginning with calendar year 1997, the Company on behalf of the Trustee shall furnish, or cause to be furnished, to each Person who at any time during the preceding calendar year was a Purchaser, a statement prepared by the Company containing the aggregate amount distributed to such Person for such calendar year or the applicable portion thereof during which such Person was a Purchaser, together with such other information as is required to be provided by an issuer of indebtedness under the Internal Revenue Code and such other customary information as the Company deems necessary or desirable to enable the Purchasers to prepare their tax returns. Such obligation of the Company shall be deemed to have been satisfied to the extent that substantially comparable information shall have been prepared by the Servicer and provided to the Trustee or the Administrative Agent and to the Purchasers, in each case pursuant to any requirements of the Internal Revenue Code as from time to time in effect. (c) EARLY AMORTIZATION EVENT/DISTRIBUTION OF PRINCIPAL NOTICES. Upon the occurrence of an Early Amortization Event with respect to Series 1996-1, the Company or the Servicer, as the case may be, shall give prompt written notice thereof to the Trustee and each Agent. As promptly as reasonably practicable after its receipt of notice of the occurrence of an Early Amortization Event with respect to Series 1996-1, the Trustee shall give notice (i) to each Rating Agency (which notice shall be given in writing not later than the second Business Day after such receipt) and (ii) to the Administrative Agent, who in turn shall give notice to each Purchaser. In addition, on the Business Day preceding each day on which a distribution of principal is to be made during the Series 1996-1 Amortization Period, the Servicer shall direct the Administrative Agent to send notice to each Purchaser, which notice shall set forth the amount of principal to be distributed on the related date to the Purchasers with respect to the outstanding VFC Certificates. V ADDITIONAL EARLY AMORTIZATION EVENTS V.1. ADDITIONAL EARLY AMORTIZATION EVENTS. If any one of the events specified in Section 7.1 of the Agreement (after any grace periods or consents applicable thereto) or any one of the following events (each, an "EARLY AMORTIZATION EVENT") shall occur during the Series 1996-1 Revolving Period with respect to the Series 1996-1 Certificates: 37 (a) (i) failure on the part of the Servicer to direct any payment or deposit to be made or failure of any payment or deposit to be made in respect of interest owing on any VFC Certificates or the Commitment Fee within two Business Days of the date such interest or Commitment Fee is due or (ii) failure on the part of the Servicer to direct any payment or deposit to be made or of the Company to make any payment or deposit in respect of any other amounts owing by the Company under any Pooling and Servicing Agreement within five Business Days of the date such other amount is due or such deposit is required to be made; (b) (i) failure on the part of the Company to duly observe or perform in any material respect any of the covenants or agreements of the Company set forth in Section 2.8 of the Agreement or (ii) failure on the part of the Company duly to observe or perform in any material respect any other covenants or agreements of the Company set forth in any Pooling and Servicing Agreement, which failure continues unremedied until 30 days after the earlier of the date on which a Responsible Officer of the Company or the Servicer has knowledge thereof and the date on which written notice of such failure, requiring the same to be remedied, shall have been given to the Company by the Trustee, or to the Company and the Trustee by the Administrative Agent or Purchasers representing 25% or more of the Series 1996-1 Invested Amount; (c) any representation or warranty made or deemed made by the Company in any Pooling and Servicing Agreement to or for the benefit of the Purchasers (i) proves to have been incorrect in any material respect when made or when deemed made and (ii) continues to be incorrect until 30 days after the earlier of the date on which a Responsible Officer of the Company or the Servicer has knowledge thereof and the date on which notice of such failure, requiring the same to be remedied, has been given by the Trustee to the Company or by Purchasers representing 25% or more of the Series 1996-1 Invested Amount to the Company and the Trustee; PROVIDED, HOWEVER, that an Early Amortization Event with respect to the Series 1996-1 Certificates shall not be deemed to have occurred under this paragraph if the incorrectness of such representation or warranty gives rise to an obligation to repurchase the related Receivables and the Company has repurchased the related Receivable or all such Receivables, if applicable, in accordance with the provisions of any Pooling and Servicing Agreement within ten Business Days of the day on which the Company was obligated to do so; (d) a Servicer Default with respect to the Servicer shall have occurred and be continuing; (e) a Purchase Termination Event (as defined in the Receivables Sale Agreement) shall have occurred and be continuing under the Receivables Sale Agreement; (f) a Change in Control shall have occurred; 38 (g) the Series 1996-1 Allocated Receivables Amount shall be less than the Series 1996-1 Target Receivables Amount for a period of five consecutive Business Days; (h) any of the Agreement, the Servicing Agreement, this Supplement or the Receivables Sale Agreement shall cease, for any reason, to be in full force and effect, or the Company, any Seller, the Servicer, any Sub- Servicer or any Affiliate of any thereof shall so assert in writing; (i) the Trust shall for any reason cease to have a valid and perfected first priority undivided ownership or security interest in the Trust Assets (subject to no other Liens other than Permitted Liens described in clauses (i) and (v) of the definition thereof), or any of RS, the Company or any Affiliate of either thereof shall so assert; or (j) there shall have been filed against RS, the Company or the Trust (i) a notice of federal tax Lien from the Internal Revenue Service, (ii) a notice of Lien from the PBGC under Section 412(n) of the Internal Revenue Code or Section 302(f) of ERISA for a failure to make a required installment or other payment to a plan to which either of such sections applies or (iii) a notice of any other Lien the existence of which could reasonably be expected to have a material adverse effect on the business, operations or financial condition of such Person, and, in each case, 40 days shall have elapsed without such notice having been effectively withdrawn or such Lien having been released or discharged; (k) RS or any of its Subsidiaries shall (i) default in any payment of principal of or interest on any of its outstanding Indebtedness (including, without limitation, Indebtedness outstanding under the Credit Agreement), beyond any period of grace (not to exceed 30 days), if any, provided in the instrument or agreement under which such Indebtedness was created; or (ii) default in the observance or performance of any other agreement or condition relating to any such Indebtedness or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event shall occur or condition exist, the effect of which default or other event or condition is to cause, or to permit the holder or holders of such Indebtedness to cause, with the giving of notice or lapse of time (or both) if required, such Indebtedness to become due prior to its stated maturity; PROVIDED, HOWEVER, that no Early Amortization Event shall be deemed to occur under this paragraph unless the aggregate amount of Indebtedness in respect of which any default or other event or condition referred to in this paragraph shall have occurred shall be equal to at least $5,000,000; (l) any action, suit, investigation or proceeding at law or in equity (including, without limitation, injunctions, writs or restraining orders) shall be brought or commenced or filed by or before any arbitrator, court or Governmental Authority against the Company or the Servicer or any properties, revenues or rights of either thereof which could reasonably be expected to have a Material Adverse Effect with respect to such Person; 39 (m) as at the end of any Settlement Period, the average Loss-to- Liquidation Ratio for the two preceding Settlement Periods (including such Settlement Period then ended) shall exceed 1%; (n) as at the end of any Settlement Period, the average Default Ratio for the two preceding Settlement Periods (including such Settlement Period then ended) shall exceed 12%; (o) for any Settlement Period, Days Sales Outstanding shall be more than 40 days; or (p) the Trust shall issue any Series of Investor Certificates other than the VFC Certificates; then, in the case of (x) any event described in Section 7.1 of the Agreement, after the applicable grace period (if any) set forth in such Section, and paragraph (p) above, automatically without any notice or action on the part of the Trustee or Purchasers, an early amortization period shall immediately commence or (y) any other event described above, after the applicable grace period (if any) set forth in such subsections, the Trustee may, and at the written direction of the Majority Purchasers shall, by written notice then given to the Company and the Servicer, declare that an early amortization period has commenced as of the date of such notice with respect to Series 1996-1 (any such period under clause (x) or (y) above, an "EARLY AMORTIZATION PERIOD"); PROVIDED, HOWEVER, that in the case of the event described in clause (g) above, if an Early Amortization Period has not been declared within ten Business Days after the occurrence of such event, then an Early Amortization Period shall occur automatically unless, (i) prior to the end of such ten Business Day period, the Series 1996-1 Allocated Receivables Amount shall no longer be less than the Series 1996-1 Target Receivables Amount and (ii) so long as the Series 1996-1 Allocated Receivables Amount continues to be equal to or greater than the Series 1996-1 Target Receivables Amount, VFC Certificateholders representing 66-2/3% or more of the Series 1996-1 Invested Amount shall have waived the occurrence of such event. Notwithstanding the foregoing, a delay or failure in performance referred to in clause (a) or (b)(i) above for a period of up to five Business Days after the applicable grace period, or in clause (b)(ii) above for a period of up to 30 Business Days after the applicable grace period, will not constitute an Early Amortization Event if such delay or failure could not have been prevented by the exercise of reasonable diligence by the Company and such delay or failure was caused by a Force Majeure Delay. The Company nevertheless will be required to use its best efforts to perform its obligations in a timely manner in accordance with the terms of the Transaction Documents, and the Company shall promptly give the Trustee an Officer's Certificate notifying it of any such failure or delay by the Company. 40 VI SERVICING FEE VI.1. SERVICING COMPENSATION. A monthly servicing fee (the "SERIES 1996-1 MONTHLY SERVICING FEE") shall be payable to the Servicer on each Distribution Date for the preceding Settlement Period in an amount equal to the product of (a) the Servicing Fee and (b) a fraction the numerator of which is the daily average Aggregate Commitment Amount for such Settlement Period and the denominator of which is the sum of (i) the Aggregate Invested Amounts (other than the Series 1996-1 Invested Amount and the Invested Amount in respect of any variable funding certificate of any other Outstanding Series) on the first day of such Settlement Period and (ii) the Aggregate Commitment Amount on the first day of such Settlement Period plus the aggregate Commitment amount for any variable funding certificate of any other Outstanding Series; PROVIDED, HOWEVER, that if an Early Amortization Event has occurred and is continuing and Rykoff- Sexton Funding Corporation or any Affiliate thereof is acting as Servicer, payment of the Series 1996-1 Monthly Servicing Fee shall be deferred until the Series 1996-1 Invested Amount has been paid in full. VII CHANGE IN CIRCUMSTANCES VII.1. ILLEGALITY. Notwithstanding any other provision herein, if, after the Issuance Date, the adoption of or any change in any Requirement of Law or in the interpretation, administration or application thereof shall make it unlawful for any Purchaser to make or maintain its portion of the VFC Certificateholders' Interest in any Eurodollar Tranche and such Purchaser shall notify in writing the Administrative Agent, the Trustee and the Company, then the portion of each Eurodollar Tranche applicable to such Purchaser shall thereafter be calculated by reference to the ABR. If any such change in the method of calculating interest occurs on a day which is not the last day of the Eurodollar Period with respect to any Eurodollar Tranche, the Company shall pay to the Administrative Agent for the account of such Purchaser the amounts, if any, as may be required pursuant to Section 7.4. VII.2. REQUIREMENTS OF LAW. (a) Notwithstanding any other provision herein, if after the Issuance Date the adoption of or any change in any Requirement of Law or in the interpretation or application thereof or compliance by any Purchaser with any request or directive (whether or not having the force of law) from any central bank or other Governmental Authority made subsequent to the date hereof: (i) shall subject any Purchaser to any tax of any kind whatsoever with respect to the Transaction Documents or change the basis of taxation of payments to any Purchaser 41 in respect thereof (except for Non-Excluded Taxes covered by Section 7.3 and changes in the rate of taxes on the overall net income of such Purchaser); (ii) shall impose, modify or deem applicable any reserve, special deposit, compulsory loan or similar requirement against assets held by, deposits or other liabilities in or for the account of, advances, loans or other extensions of credit by, or any other acquisition of funds by, any office of such Purchaser which is not otherwise included in the determination of the Eurodollar Rate; or (iii) shall impose on such Lender any other condition; and the result of any of the foregoing is to increase the cost to such Purchaser by an amount which such Purchaser deems to be material, of making, converting into, continuing or maintaining Eurodollar Tranches or to reduce any amount receivable hereunder in respect thereof, then, in any such case, the Company will pay to such Purchaser upon demand such additional amount or amounts as will compensate such Purchaser for such additional costs incurred or reduced amount receivable. (a) If any Purchaser shall have determined after the Issuance Date that the adoption of or any change in any Requirement of Law regarding capital adequacy or in the interpretation or application thereof or compliance by such Purchaser or any corporation controlling such Purchaser with any request or directive regarding capital adequacy (whether or not having the force of law) from any Governmental Authority made subsequent to the date hereof shall have the effect of reducing the rate of return on such Purchaser's or such corporation's capital as a consequence of its obligations hereunder to a level below that which such Lender or such corporation could have achieved but for such adoption, change or compliance (taking into consideration such Purchaser's or such corporation's policies with respect to capital adequacy) by an amount deemed by such Lender to be material, then from time to time, the Company shall promptly pay to such Purchaser such additional amount or amounts as will compensate such Purchaser for such reduction. (b) If any Purchaser becomes entitled to claim any additional amounts pursuant to subsection (a) or (b) above, it shall promptly notify the Company (with a copy to the Administrative Agent) of the event by reason of which it has become so entitled. A certificate as to any additional amounts payable pursuant to this subsection submitted by such Purchaser to the Company (with a copy to the Administrative Agent) shall be conclusive in the absence of manifest error. The agreements in this Section shall survive the termination of this Supplement and the Agreement and the payment of all amounts payable hereunder and thereunder. VII.3. TAXES. (a) All payments made by the Company under this Supplement shall be made free and clear of, and without deduction or withholding for or on account of, any present or future income, stamp or other taxes, levies, imposts, duties, charges, fees, deductions or withholdings, now or hereafter imposed, levied, collected, withheld or assessed by any 42 Governmental Authority, excluding net income taxes and franchise taxes (imposed in lieu of net income taxes) imposed on any Agent or any Purchaser as a result of a present or former connection between such Agent or such Purchaser and the jurisdiction of the Governmental Authority imposing such tax or any political subdivision or taxing authority thereof or therein (other than any such connection arising solely from such Agent's or such Purchaser's having executed, delivered or performed its obligations or received a payment under, or enforced, this Supplement). If any such non-excluded taxes, levies, imposts, duties, charges, fees deductions or withholdings ("NON-EXCLUDED TAXES") are required to be withheld from any amounts payable to any Agent or any Purchaser hereunder, the amounts so payable to such Agent or such Purchaser shall be increased to the extent necessary to yield to such Agent or such Purchaser (after payment of all Non-Excluded Taxes) interest or any such other amounts payable hereunder at the rates or in the amounts specified in this Supplement, PROVIDED, HOWEVER, that the Company shall not be required to increase any such amounts payable to any Purchaser that is not organized under the laws of the United States of America or any state thereof if such Purchaser fails to comply with the requirements of paragraph (b) of this subsection. Whenever any Non-Excluded Taxes are payable by the Company, as promptly as possible thereafter the Company shall send to the Administrative Agent for its own account or for the account of such Purchaser, as the case may be, a certified copy of an original official receipt received by the Company showing payment thereof. If the Company fails to pay any Non- Excluded Taxes when due to the appropriate taxing authority or fails to remit to the Administrative Agent the required receipts or other required documentary evidence, the Company shall indemnify each Agent and the Purchasers for any incremental taxes, interest or penalties that may become payable by such Agent or any Purchaser as a result of any such failure. The agreements in this subsection shall survive the termination of this Supplement and the Agreement and the payment of all amounts payable hereunder and thereunder. (a) Each Purchaser that is not incorporated under the laws of the United States of America or a state thereof shall: (i) deliver to the Company and the Administrative Agent (A) two duly completed copies of United States Internal Revenue Service Form 1001 or 4224, or successor applicable form, as the case may be, and (B) an Internal Revenue Service Form W-8 or W-9, or successor applicable form, as the case may be; (ii) deliver to the Company and the Administrative Agent two further copies of any such form or certification on or before the date that any such form or certification expires or becomes obsolete and after the occurrence of any event requiring a change in the most recent form previously delivered by it to the Company; and (iii) obtain such extensions of time for filing and complete such forms or certifications as may reasonably be requested by the Company or the Administrative Agent; 43 unless in any such case an event (including, without limitation, any change in treaty, law or regulation) has occurred prior to the date on which any such delivery would otherwise be required which renders all such forms inapplicable or which would prevent such Purchaser from duly completing and delivering any such form with respect to it and such Purchaser so advises the Company and the Administrative Agent. Each Purchaser so incorporated shall certify at the time it first becomes a Purchaser, and thereafter to the extent provided by law, (i) in the case of a Form 1001 or 4224, that it is entitled to receive payments under this Agreement without deduction or withholding of any United States federal income taxes and (ii) in the case of a Form W-8 or W-9, that it is entitled to an exemption from United States backup withholding tax. Each Person that shall become a Purchaser or a Participant pursuant to Section 11.10 shall, upon the effectiveness of the related transfer, be required to provide all of the forms and statements required pursuant to this subsection 7.3(b), PROVIDED that in the case of a Participant, such Participant shall furnish all such required forms and statements to the Purchaser from which the related participation shall have been purchased. VII.4. INDEMNITY. The Company agrees to indemnify each Purchaser and to hold each Purchaser harmless from any loss or expense which such Purchaser may sustain or incur as a consequence of (a) default by the Company in making a borrowing of, conversion into or continuation of a Eurodollar Tranche after the Company has given irrevocable notice requesting the same in accordance with the provisions of this Supplement, or (b) default by the Company in making any prepayment in connection with a Decrease after the Company has given irrevocable notice thereof in accordance with the provisions of Section 2.6 of this Supplement or (c) the making of a prepayment of a Eurodollar Tranche prior to the termination of the Eurodollar Period for such Eurodollar Tranche. Such indemnification may include an amount equal to the excess, if any, of (i) the amount of interest which would have accrued on the amount so prepaid or not so borrowed, converted or continued, for the period from the date of such prepayment or of such failure to borrow, convert or continue to the last day of the Eurodollar Period (or in the case of a failure to borrow, convert or continue, the Eurodollar Period that would have commenced on the date of such prepayment or of such failure) in each case at the applicable rate of interest for such Eurodollar Tranche provided for herein (excluding, however, the Applicable Margin included therein, if any) over (ii) the amount of interest (as reasonably determined by such Purchaser) which would have accrued to such Purchaser on such amount by placing such amount on deposit for a comparable period with leading banks in the interbank eurodollar market; PROVIDED that any payments made by the Company pursuant to this subsection shall be made solely from funds available to the Company which are not otherwise needed to be applied to the payment of any amounts pursuant to any Pooling and Servicing Agreements, shall be non-recourse other than with respect to proceeds in excess of the proceeds to make such payment, and shall not constitute a claim against the Company to the extent that insufficient proceeds exist to make such payment. This covenant shall survive the termination of this Supplement and the Agreement and the payment of all amounts payable hereunder and thereunder. A certificate as to any additional amounts payable pursuant to the foregoing sentence submitted by any Purchaser to the Company shall be conclusive absent manifest error. 44 VII.5. INABILITY TO DETERMINE EURODOLLAR RATE. If, on or prior to the first day of any Eurodollar Period: (a) the Administrative Agent shall have determined (which determination shall be conclusive and binding upon the Company) that, by reason of circumstances affecting the relevant market, adequate and reasonable means do not exist for ascertaining the Eurodollar Rate for such Eurodollar Period, or (b) the Administrative Agent shall have received notice from the Majority Purchasers that the Eurodollar Rate determined or to be determined for such Eurodollar Period will not adequately and fairly reflect the cost to such Purchasers (as conclusively certified by such Purchasers) of maintaining the Eurodollar Tranches during such Eurodollar Period, then the Administrative Agent shall forthwith give telecopy or telephonic notice thereof to the Company, the Trustee and the Purchasers, whereupon until the Administrative Agent notifies the Company and the Trustee that the circumstances giving rise to such notice no longer exist, the Available Pricing Amount shall not be allocated to any Eurodollar Tranche. VIII REPRESENTATIONS AND WARRANTIES, COVENANTS VIII.1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SERVICER. The Company and the Servicer each hereby represents and warrants to the Trustee, each Agent and each of the Purchasers that each and every of their respective representations and warranties contained in the Agreement is true and correct in all material respects as of the Issuance Date and as of the date of each Increase. VIII.2. COVENANTS OF THE COMPANY AND THE SERVICER. The Company and the Servicer hereby agree, in addition to their obligations under the Agreement and the Servicing Agreement, that: (a) within 90 days of the date hereof, they will (i) deliver to the Trustee executed copies of software licenses or sublicenses, in a form reasonably acceptable to the Trustee, which grant to the Trustee the right to utilize any of the software owned or licensed by the Servicer that is necessary to perform the collection and administrative functions to be performed by the Trustee under the Transaction Documents, (ii) deliver to the Trustee executed copies of any landlord waivers, in a form reasonably acceptable to the Trustee, that may be necessary to grant to the Trustee access to any leased premises of the Servicer for which the Trustee may require access to perform the collection and administrative functions to be performed by the Trustee under the Transaction Documents, except to the extent the Company or the Servicer, as the case may be, owns such property and (iii) have 45 taken all actions reasonably requested by the Trustee in connection with, and to ensure completion of, each of the Servicer Site Review and the Standby Liquidation System; (b) they shall observe in all material respects each and every of their respective covenants (both affirmative and negative) contained in the Agreement, the Servicing Agreement, this Supplement and all other Transaction Documents to which each is a party; (c) they shall afford each Agent or any representative of such Agent access to all records relating to the Receivables at any reasonable time during regular business hours, upon reasonable prior notice, for purposes of inspection and shall permit each Agent or any representative of such Agent to visit any of the Company's or the Servicer's, as the case may be, offices or properties during regular business hours and as often as may reasonably be desired according to the Company's or the Servicer's, as the case may be, normal security and confidentiality requirements and to discuss the business, operations, properties, financial and other conditions of the Company or the Servicer with their respective officers and employees and with their independent certified public accountants; PROVIDED that such Agent shall notify the Company or the Servicer, as the case may be, prior to any contact with such accountants and shall give the Company or the Servicer the opportunity to participate in such discussions; (d) neither the Company nor the Servicer shall take any action, nor permit any Seller to take any action, requiring the satisfaction of the Rating Agency Condition pursuant to any Transaction Document without the prior written consent of the Majority Purchasers. VIII.3. COVENANTS OF THE SERVICER. The Servicer hereby agrees that: (a) it shall observe each and all of its respective covenants (both affirmative and negative) contained in the Pooling and Servicing Agreements in all material respects; (b) it shall provide to each Agent (i) no later than 45 days after the Initial Closing Date and (ii) in the case of an addition of a Seller, prior to the related Seller Addition Date (as defined in the Receivables Sale Agreement), evidence that each Seller, or such Seller, as the case may be, maintains disaster recovery systems and back-up computer and other information management systems that are reasonably satisfactory to the Agents; (c) it shall provide to each Agent, simultaneously with delivery to the Trustee or the Rating Agencies, all reports, notices, certificates, statements and other documents required to be delivered to the Trustee or the Rating Agencies pursuant to the Agreement, the Servicing Agreement and the other Transaction Documents and furnish to each Agent promptly after receipt thereof a copy of each material notice, material demand or other material communication 46 (excluding routine communications) received by or on behalf of the Company or the Servicer with respect to the Transaction Documents; (d) it shall provide notice to each Agent of the appointment of a Successor Servicer pursuant to Section 6.2 of the Servicing Agreement; and (e) it shall operate in good faith to allow the Trustee to use the Servicer's available facilities and expertise upon the Servicer's termination or default. VIII.4. OBLIGATIONS UNAFFECTED. The obligations of the Company and the Servicer to the Agents and the Purchasers under this Supplement shall not be affected by reason of any invalidity, illegality or irregularity of any of the Receivables or any sale of any of the Receivables. IX CONDITIONS PRECEDENT IX.1. CONDITIONS PRECEDENT TO EFFECTIVENESS OF SUPPLEMENT. This Supplement shall become effective on the date (the "EFFECTIVE DATE") on which the following conditions precedent have been satisfied: (a) DOCUMENTS. The Agents shall have received an original copy for each Purchaser, each executed and delivered in form and substance satisfactory to the Agents, of (i) the Agreement, executed by a duly authorized officer of each of the Company, the Servicer and the Trustee, (ii) this Supplement, executed by a duly authorized officer of each of the Company, the Servicer, the Trustee, the Administrative Agent, the Co-Agent and the Initial Purchasers and (iii) the other Transaction Documents, each duly executed by the parties thereto. (b) CORPORATE DOCUMENTS; CORPORATE PROCEEDINGS OF THE COMPANY AND SERVICER. Each Agent shall have received, with a copy for each Purchaser, from the Company, each Seller and the Servicer, true and complete copies of: (i) the certificate of incorporation, including all amendments thereto, of such Person, certified as of a recent date by the Secretary of State or other appropriate authority of the state of incorporation, as the case may be, and a certificate of compliance, of status or of good standing, as and to the extent applicable, of each such Person as of a recent date, from the Secretary of State or other appropriate authority of such jurisdiction; (ii) a certificate of the Secretary of such Person, dated the Effective Date and certifying (A) that attached thereto is a true and complete copy of the by-laws 47 of such Person, as in effect on the Effective Date and at all times since a date prior to the date of the resolutions described in clause (B) below, (B) that attached thereto is a true and complete copy of the resolutions, in form and substance reasonably satisfactory to the Agents, of the Board of Directors of such Person or committees thereof authorizing the execution, delivery and performance of the Transaction Documents to which it is a party and the transactions contemplated thereby, and that such resolutions have not been amended, modified, revoked or rescinded and are in full force and effect, (C) that the certificate of incorporation of such Person has not been amended since the date of the last amendment thereto shown on the certificate of good standing (or its equivalent) furnished pursuant to clause (i) above and (D) as to the incumbency and specimen signature of each officer executing any Transaction Documents or any other document delivered in connection herewith or therewith on behalf of such Person; and (iii) a certificate of another officer as to the incumbency and specimen signature of the Secretary or Assistant Secretary executing the certificate pursuant to clause (ii) above. (c) GOOD STANDING CERTIFICATES. Each Agent shall have received copies of certificates of compliance, of status or of good standing, dated as of a recent date, from the Secretary of State or other appropriate authority of such jurisdiction, with respect to the Company, the Servicer and each Seller, in each State where the ownership, lease or operation of property or the conduct of business requires it to qualify as a foreign corporation, except where the failure to so qualify would not have a material adverse effect on the business, operations, properties or condition (financial or otherwise) of the Company, the Servicer or such Seller, as the case may be. (d) CONSENTS, LICENSES, APPROVALS, ETC. Each Agent shall have received, with a counterpart for each Purchaser, certificates dated the date hereof of a Responsible Officer of the Company, the Servicer and each Seller either (i) attaching copies of all material consents, licenses and approvals required in connection with the execution, delivery and performance by the Company, the Servicer or such Seller, as the case may be, of this Supplement or the Receivables Sale Agreement, as the case may be, and the validity and enforceability of this Supplement and the Agreement against the Company and the Servicer and the Receivables Sale Agreement against such Seller, and such consents, licenses and approvals shall be in full force and effect or (ii) stating that no such consents, licenses or approvals are so required. (e) NO LITIGATION. Each Agent shall have received confirmation that there is no pending or, to their knowledge after due inquiry, threatened action or proceeding affecting RS or any of its Subsidiaries before any Governmental Authority that could reasonably be expected to have a Material Adverse Effect with respect to RS and its Subsidiaries taken as a whole. 48 (f) LIEN SEARCHES. Each Agent shall have received the results of a recent search by a Person satisfactory to the Agents of UCC and other filings with respect to the Company and such other parties as it deems reasonably necessary. (g) UCC CERTIFICATE. Each Agent shall have received from each Seller and the Company a UCC Certificate, completed in a manner satisfactory to such Agent, duly executed by a Responsible Officer of such Seller or the Company, as the case may be, and dated the Issuance Date. (h) FILINGS, REGISTRATIONS AND RECORDINGS. Any documents (including, without limitation, financing statements) required to be filed in order (i) to perfect the sale of the Receivables by each Seller to the Company pursuant to the Receivables Sale Agreement and (ii) to create, in favor of the Trustee, a perfected ownership/security interest in the Trust Assets under the Agreement with respect to which an ownership/security interest may be perfected by a filing under the UCC or other comparable statute, shall, in each case, have been properly prepared and executed for immediate filing in each office in each jurisdiction listed in the Agreement or the Receivables Sale Agreement, as the case may be, and such filings are the only filings required in order to perfect the sale of the Receivables to the Company under the Receivables Sale Agreement or to the Trust, under the Agreement, as the case may be, in the jurisdictions listed therein. Each Agent shall have received evidence reasonably satisfactory to the Agents of each such filing, registration or recordation and reasonably satisfactory evidence of the payment of any necessary fee, tax or expense relating thereto. (i) LEGAL OPINIONS. Each Agent shall have received, with a counterpart for each Purchaser and the Trustee, opinions of counsel to the Company and the Servicer, dated the Issuance Date, as to corporate, tax, bankruptcy, perfection and other matters in form and substance acceptable to the Agents and their counsel. (j) FEES. Each Agent shall have received payment of all fees and other amounts due and payable to it on or before the Effective Date, pursuant to that certain Fee Letter, dated February 2, 1996, from BA Securities, Inc., Chase Securities Inc., BofA and Chase to RS and US Foodservice. (k) ESTABLISHMENT OF ACCOUNTS. The Agents (x) shall have received evidence reasonably satisfactory to it that the Collection Account, the Lockbox Accounts and all other Trust Accounts shall have been established in accordance with the terms and provisions of the Pooling and Servicing Agreements, and (y) shall otherwise be satisfied with the arrangements for collection of the Receivables pursuant thereto. (l) AGREED-UPON PROCEDURES; POLICIES. The Agents shall have received, with sufficient copies for each Purchaser, (i) a letter in form and substance satisfactory to the 49 Agents from Independent Public Accountants to the effect that such accountants have performed certain agreed-upon procedures relating to the Servicer and historical information with respect to the Receivables and which describes such accountants' findings with respect to such procedures and (ii) a copy of the Policies of each Seller, which shall be satisfactory in form and substance to the Agents. (m) RECEIVABLES SALE AGREEMENT CONDITIONS SATISFIED. Each of the conditions precedent set forth in Section 3.01 of the Receivables Sale Agreement shall have been satisfied, it being understood that the Trustee, the Agents and the Purchasers shall be entitled to rely on all certificates and other documents delivered thereunder and all opinions delivered thereunder shall be addressed to each of them. X THE AGENTS X.1. APPOINTMENT. Each Purchaser hereby irrevocably designates and appoints the Agents as the agents of such Purchaser under this Supplement and each such Purchaser irrevocably authorizes each Agent, in such capacity, to take such action on its behalf under the provisions of this Supplement and to exercise such powers and perform such duties as are expressly delegated to each Agent by the terms of this Supplement, together with such other powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary elsewhere in this Supplement, the Agents shall not have any duties or responsibilities except those expressly set forth herein, or any fiduciary relationship with any Purchaser, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Supplement or otherwise exist against the Agents. X.2. DELEGATION OF DUTIES. The Agents may execute any of their duties under this Supplement by or through agents or attorneys-in-fact and shall be entitled to advice of counsel (who may be counsel for the Company or the Servicer), independent public accountants and other experts selected by them concerning all matters pertaining to such duties. The Agents shall not be responsible for the negligence or misconduct of any agents or attorneys in-fact selected by them with reasonable care. X.3. EXCULPATORY PROVISIONS. Neither Agent nor any of its respective officers, directors, employees, agents, attorneys-in-fact or Affiliates shall be (i) liable for any action lawfully taken or omitted to be taken by it or such Person under or in connection with the Agreement or this Supplement (x) with the consent or at the request of the Majority Purchasers or (y) in the absence of its own gross negligence or willful misconduct or (ii) responsible in any manner to any of the Purchasers for any recitals, statements, representations or warranties made by the Company or any officer thereof contained in this Supplement or any other Transaction Document or in any certificate, report, statement or other document referred to or provided for 50 in, or received by such Agent under or in connection with, this Supplement or any other Transaction Document or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Supplement or any other Transaction Document or for any failure of the Company to perform its obligations hereunder or thereunder. The Agents shall not be under any obligation to any Purchaser to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Supplement or any other Transaction Document, or to inspect the properties, books or records of the Company. X.4. RELIANCE BY AGENTS. Each Agent shall be entitled to rely, and shall be fully protected in relying, upon any Certificate, writing, resolution, notice, consent, certificate, affidavit, letter, telecopy, telex or teletype message, statement, order or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including, without limitation, counsel to the Company or the Servicer), independent accountants and other experts selected by such Agent and shall not be liable for any action taken or omitted to be taken by it in good faith in accordance with the advice of such counsel, accountants or experts. The Agents may deem and treat the payee of any Certificate as the owner thereof for all purposes unless a written notice of assignment, negotiation or transfer thereof shall have been filed with the Agents. Each Agent shall be fully justified in failing or refusing to take any action under this Supplement or any other Transaction Document unless it shall first receive such advice or concurrence of the Majority Purchasers as it deems appropriate or it shall first be indemnified to its satisfaction by the Purchasers against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Agents shall in all cases be fully protected in acting, or in refraining from acting, under this Supplement and the other Transaction Documents in accordance with a request of the Majority Purchasers, and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Purchasers. X.5. NOTICE OF SERVICER DEFAULT OR EARLY AMORTIZATION EVENT OR POTENTIAL EARLY AMORTIZATION EVENT. An Agent shall not be deemed to have knowledge or notice of the occurrence of any Servicer Default with respect to the Servicer or any Early Amortization Event or Potential Early Amortization Event hereunder unless such Agent has received notice from a Purchaser, the Company or the Servicer referring to the Agreement or this Supplement, describing such Servicer Default or Early Amortization Event or Potential Early Amortization Event and stating that such notice is a "notice of a Servicer Default with respect to the Servicer" or a "notice of an Early Amortization Event or Potential Early Amortization Event", as the case may be. In the event that the Administrative Agent receives such a notice, the Administrative Agent shall give notice thereof to the Purchasers, the Trustee, the Company and the Servicer. The Administrative Agent shall take such action with respect to such Servicer Default or Early Amortization Event or Potential Early Amortization Event as shall be reasonably directed by the Majority Purchasers, PROVIDED that unless and until the Administrative Agent shall have received such directions, the Administrative Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Servicer Default or Early Amortization 51 Event or Potential Early Amortization Event as it shall deem advisable in the best interests of the Purchasers. X.6. NON-RELIANCE ON AGENTS AND OTHER PURCHASERS. Each Purchaser expressly acknowledges that neither Agent nor any of their respective officers, directors, employees, agents, attorneys-in-fact or Affiliates has made any representations or warranties to it and that no act by either Agent hereinafter taken, including any review of the affairs of the Company, shall be deemed to constitute any representation or warranty by such Agent to any Purchaser. Each Purchaser represents to the Agents that it has, independently and without reliance upon either Agent or any other Purchaser, and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, operations, property, financial and other condition and creditworthiness of the Company and made its own decision to enter into this Supplement. Each Purchaser also represents that it will, independently and without reliance upon either Agent or any other Purchaser, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Supplement and the other Transaction Documents, and to make such investigation as it deems necessary to inform itself as to the business, operations, property, financial and other condition and creditworthiness of the Company. Except for notices, reports and other documents expressly required to be furnished to the Purchasers by the Administrative Agent hereunder, neither Agent shall have any duty or responsibility to provide any Purchaser with any credit or other information concerning the business, operations, property, condition (financial or otherwise), prospects or creditworthiness of the Company which may come into the possession of such Agent or any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates. X.7. INDEMNIFICATION. The Purchasers agree to indemnify each Agent in its capacity as such (to the extent not reimbursed by the Company and the Servicer and without limiting the obligation of the Company and the Servicer to do so), ratably according to their respective Commitment Percentages in effect on the date on which indemnification is sought (or, if indemnification is sought after the Commitment Termination Date, ratably in accordance with their Commitment Percentages immediately prior to such date), from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever which may at any time be imposed on, incurred by or asserted against such Agent in any way relating to or arising out of the Commitments, this Supplement any of the other Transaction Documents or any documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby or any action taken or omitted by the Administrative Agent under or in connection with any of the foregoing; PROVIDED that no Purchaser shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting solely from such Agent's gross negligence or willful misconduct. The agreements in this Section shall survive the payment of all amounts payable hereunder. 52 X.8. THE AGENTS IN THEIR INDIVIDUAL CAPACITIES. Each Agent and its Affiliates may make loans to, accept deposits from and generally engage in any kind of business with the Company, the Servicer or any of their Affiliates as though such Agent were not an Agent hereunder. With respect to any VFC Certificate held by either Agent, such Agent shall have the same rights and powers under this Supplement and the other Transaction Documents as any Purchaser and may exercise the same as though it were not an Agent, and the terms "Initial Purchaser" and "Purchaser" shall include each Agent in its individual capacity. X.9. SUCCESSOR ADMINISTRATIVE AGENT. The Administrative Agent may resign as Administrative Agent upon 10 days' notice to the Purchasers. If the Administrative Agent shall resign as Administrative Agent under this Supplement, then the Majority Purchasers shall appoint from among the Purchasers a successor administrative agent for the Purchasers, which successor administrative agent shall be approved by the Company and the Servicer (which approval shall not be unreasonably withheld), whereupon such successor administrative agent shall succeed to the rights, powers and duties of the Administrative Agent, and the term "Administrative Agent" shall mean such successor administrative agent effective upon such appointment and approval, and the former Administrative Agent's rights, powers and duties as Administrative Agent shall be terminated, without any other or further act or deed on the part of such former Administrative Agent or any of the parties to this Supplement. After any retiring Administrative Agent's resignation as Administrative Agent, the provisions of this Article 10 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent under this Supplement. XI MISCELLANEOUS XI.1. RATIFICATION OF AGREEMENT. As supplemented by this Supplement, the Agreement is in all respects ratified and confirmed and the Agreement as so supplemented by this Supplement shall be read, taken and construed as one and the same instrument. XI.2. GOVERNING LAW. THIS SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS. XI.3. FURTHER ASSURANCES. Each of the Company, the Servicer and the Trustee agrees, from time to time, to do and perform any and all acts and to execute any and all further instruments required or reasonably requested by either Agent or the Majority Purchasers more fully to effect the purposes of this Supplement and the sale of the VFC Certificates hereunder, including, without limitation, in the case of the Company and the Servicer, the execution of any financing or registration statements or similar documents or notices or continuation statements 53 relating to the Receivables and the other Trust Assets for filing or registration under the provisions of the UCC or similar legislation of any applicable jurisdiction. SECTION XI.25. PAYMENTS. Each payment to be made hereunder shall be made on the required payment date in lawful money of the United States and in immediately available funds, if to the Purchasers, at the office of the Administrative Agent set forth in Section 11.9. On each Distribution Date, the Administrative Agent shall remit in like funds to each Purchaser its applicable PRO RATA share (based on each such Purchaser's Series 1996-1 Invested Amount) of each such payment received by the Administrative Agent for the account of the Purchasers. XI.5. COSTS AND EXPENSES. The Company agrees to pay all reasonable out-of-pocket costs and expenses of the Agents (including, without limitation, reasonable fees and disbursements of one counsel to the Agents) in connection with (i) the preparation, execution and delivery of this Supplement, the Agreement and the other Transaction Documents and amendments or waivers of any such documents and (ii) the enforcement by the Agents of the obligations and liabilities of the Company and the Servicer under the Agreement, this Supplement, the other Transaction Documents or any related document; PROVIDED that any payments made by the Company pursuant to this subsection shall be made solely from funds available to the Company which are not otherwise needed to be applied to the payment of any amounts pursuant to any Pooling and Servicing Agreements, shall be non-recourse other than with respect to proceeds in excess of the proceeds to make such payment, and shall not constitute a claim against the Company to the extent that insufficient proceeds exist to make such payment. XI.6. NO WAIVER; CUMULATIVE REMEDIES. No failure to exercise and no delay in exercising, on the part of the Trustee, any Agent or any Purchaser, any right, remedy, power or privilege hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided are cumulative and not exhaustive of any rights, remedies, powers and privileges provided by law. XI.7. AMENDMENTS. (a) Subject to subsection (c) of this Section 11.7, this Supplement may be amended in writing from time to time by the Servicer, the Company and the Trustee, with the consent of the Agents but without the consent of any holder of any outstanding VFC Certificate, to cure any ambiguity, to correct or supplement any provisions herein which may be inconsistent with any other provisions herein or to add any other provisions to or change in any manner or eliminate any of the provisions with respect to matters or questions raised under this Supplement which shall not be inconsistent with the provisions of any Pooling and Servicing Agreement; PROVIDED, HOWEVER, that such action shall not, as evidenced by an Officer's Certificate or, to the extent in the reasonable view of the Company, a question of law exists, an Opinion of Counsel delivered to the Trustee, adversely affect in any material respect the interests of the VFC Certificateholders. The Trustee may, but shall not be obligated to, enter into any such amendment 54 pursuant to this paragraph or paragraph (b) below which affects the Trustee's rights, duties or immunities under any Pooling and Servicing Agreement or otherwise. (a) Subject to subsection (c) of this Section 11.7, this Supplement may also be amended in writing from time to time by the Servicer, the Company and the Trustee with the consent of the Majority Purchasers for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Supplement or of modifying in any manner the rights of the VFC Certificateholders (including, without limitation, the acceleration of the payment of sums payable to or for the account of the Purchasers under any provision of this Supplement); PROVIDED, HOWEVER, that no such amendment shall, unless signed or consented to in writing by all Purchasers, (i) extend the time for payment, or reduce the amount, of any sum payable to or for the account of any Purchaser under any provision of this Supplement, (ii) subject any Purchaser to any additional obligation (including, without limitation, any change in the determination of any amount payable by any Purchaser) or (iii) change the Aggregate Commitment Amount or the percentage of Purchasers which shall be required for any action under this subsection or any other provision of this Supplement. (b) Any amendment hereof can be effected without an Agent's being party thereto; PROVIDED, HOWEVER, that no such amendment, modification or waiver of this Supplement that affects rights or duties of such Agent shall be effective unless such Agent shall have given its prior written consent thereto. (c) No amendment hereof shall be effective until the Rating Agency Condition has been satisfied (unless Series 1996-1 has not been rated, in which case this subsection 11.7(d) shall not apply). XI.8. SEVERABILITY. If any provision hereof is void or unenforceable in any jurisdiction, such voidness or unenforceability shall not affect the validity or enforceability of (i) such provision in any other jurisdiction or (ii) any other provision hereof in such or any other jurisdiction. XI.9. NOTICES. All notices, requests and demands to or upon any party hereto to be effective shall be given (i) in the case of the Company, the Servicer and the Trustee, in the manner set forth in Section 10.5 of the Agreement and (ii) in the case of the Agents, each Purchaser and the Rating Agencies (if the Series 1996-1 has been rated), in writing, and, unless otherwise expressly provided herein, shall be deemed to have been duly given or made when delivered by hand or three days after being deposited in the mail, postage prepaid, or, in the case of facsimile notice, when received, (A) in the case of each Purchaser, at its address set forth on Schedule 1 hereto, (B) addressed as follows in the case of the Agents and (C) addressed to the Rating Agencies (if the Series 1996-1 has been rated) as notified by such Rating Agencies; or to such other address as may be hereafter notified by the respective parties hereto: 55 Administrative Agent: Bank of America National Trust and Savings Association c/o BA Securities, Inc. 231 South LaSalle Street, Suite 1220 Chicago, Illinois 60697 Attention: Erik Ford Fax: 312-923-0273 Co-Agent: The Chase Manhattan Bank, N.A. One Chase Manhattan Plaza, 5th Floor New York, New York 10081 Attention: Karen Sharf Fax: 212-552-7879 SECTION XI.31. SUCCESSORS AND ASSIGNS. XI(rr) This Supplement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that the Company may not assign or transfer any of its rights under this Supplement without the prior written consent of the Purchasers. (a) Any Purchaser may, in the ordinary course of its business and in accordance with applicable law, at any time sell to one or more financial institutions or other entities ("PARTICIPANTS") participations in its VFC Certificate and its rights hereunder pursuant to documentation in form and substance satisfactory to such Purchaser and the Participant; PROVIDED, HOWEVER, that (i) in the event of any such sale by a Purchaser to a Participant, (A) such Purchaser's obligations under this Supplement shall remain unchanged, (B) such Purchaser shall remain solely responsible for the performance thereof and (C) the Company shall continue to deal solely and directly with such Purchaser in connection with its rights and obligations under the Pooling and Servicing Agreements, (ii) no Purchaser shall sell any participating interest under which the Participant shall have rights to approve any amendment to, or any consent or waiver with respect to, any Pooling and Servicing Agreement, except to the extent that the approval of such amendment, consent or waiver otherwise would require the unanimous consent of all Purchasers hereunder, (iii) no sale by a Purchaser to a Participant shall be given effect if such sale is not permitted under subsection 5.3(e) of the Agreement, and (iv) each Participant shall, prior to becoming a Participant, execute and deliver to the Administrative Agent an Assignment/Participation Certification. The Company agrees that each Purchaser is entitled, in its own name, to enforce for the benefit of, or as agent for, any Participant any and all rights, claims and interest of such Participant in respect of the Trust and the Company's obligations under this Supplement. A Participant shall have the right to receive Article VII Costs but only to the extent that the related selling Purchaser would have had such right absent the sale of the related participation. (b) Any Purchaser may, upon the satisfaction of all applicable requirements under Section 5.3 of the Agreement, in the ordinary course of its business and in accordance with 56 applicable law, at any time sell all or any part of its rights and obligations under this Supplement and the VFC Certificate to (i) its Affiliates and to any other Purchaser and, (ii) upon prior written notice to the Administrative Agent, one or more banks or other entities (an "ACQUIRING PURCHASER"), in each case pursuant to a commitment transfer supplement, substantially in the form of Exhibit C (the "COMMITMENT TRANSFER SUPPLEMENT"), executed by such Acquiring Purchaser, such assigning Purchaser and the Administrative Agent (and, in the case of an Acquiring Purchaser that is not then an existing Purchaser or an Affiliate thereof, by the Company and the Servicer), and delivered to the Administrative Agent for its acceptance and recording in the Register. Notwithstanding the foregoing, no Purchaser shall so sell its rights hereunder without the prior written consent of the Company, which consent shall not be unreasonably withheld, and no Purchaser shall sell its rights hereunder (x) if such sale is not permitted under subsection 5.3(e) of the Agreement and (y) unless, prior to such sale, the purchaser of such rights shall have executed and delivered to the Administrative Agent and the Transfer Agent and Registrar an Assignment/Participation Certification. Upon such execution, delivery, acceptance and recording, (A) the Company shall sign, on behalf of the Trust, and shall direct the Trustee in writing to duly authenticate, and the Trustee, upon receiving such direction, shall so authenticate, a new VFC Certificate in the name and the denomination determined pursuant to the related Commitment Transfer Supplement and set forth in such written direction and shall deliver such VFC Certificate to the Acquiring Purchaser in accordance with such written direction, and (B) from and after the Transfer Issuance Date determined pursuant to such Commitment Transfer Supplement, (I) the Acquiring Purchaser thereunder shall be a party hereto and, to the extent provided in such Commitment Transfer Supplement, have the rights and obligations of a Purchaser hereunder with a Commitment as set forth therein and (II) the transferor Purchaser thereunder shall, to the extent provided in such Commitment Transfer Supplement, be released from its obligations under this Supplement. Such Commitment Transfer Supplement shall be deemed to amend this Supplement (including the Schedules attached hereto) to the extent, and only to the extent, necessary to reflect the addition of such Acquiring Purchaser as a "Purchaser" and the resulting adjustment of Commitment percentages arising from the purchase by such Acquiring Purchaser of all or a portion of the rights and obligations of such transferor Purchaser under this Supplement and the VFC Certificates. (c) The Administrative Agent shall maintain at its address referred to in Section 11.9 a copy of each Commitment Transfer Supplement delivered to it. (d) Upon its receipt of a Commitment Transfer Supplement executed by a transferor Purchaser and an Acquiring Purchaser (and, in the case of a Transferee that is not then an existing Purchaser or an Affiliate thereof, by the Company and the Servicer), the Administrative Agent shall (i) promptly accept such Commitment Transfer Supplement and (ii) on the Transfer Issuance Date determined pursuant thereto record the information contained therein in the Register and give notice of such acceptance and recordation to the Purchasers, the Servicer and the Company. 57 (e) The Company and the Servicer each authorizes each Purchaser to disclose to any Participant or Acquiring Purchaser (each, a "TRANSFEREE") and any prospective Transferee any and all financial information in such Purchaser's possession concerning the Company, the Servicer or the Receivables which has been delivered to such Purchaser by the Company or the Servicer pursuant to this Supplement or which has been delivered to such Purchaser by or on behalf of the Company in connection with such Purchaser's credit evaluation of the Company, the Servicer, the Trust and the Trust Assets prior to becoming a party to this Supplement; PROVIDED, HOWEVER, if any such information is subject to a confidentiality agreement between such Purchaser and the Company or the Servicer, the Transferee or prospective Transferee shall have agreed to be bound by the terms and conditions of such confidentiality agreement. (f) If, pursuant to this Section 11.10, any interest in this Supplement or the VFC Certificates is transferred to any Transferee which is organized under the laws of any jurisdiction other than the United States or any State thereof, the transferor Purchaser shall cause such Transferee, concurrently with the effectiveness of such transfer, (i) to represent to the transferor Purchaser (for the benefit of the transferor Purchaser, the Agents, the Company and the Servicer) that under applicable law and treaties no taxes will be required to be withheld by any Agent, the Company, the Servicer or the transferor Purchaser with respect to any payments to be made to such Transferee in respect of the VFC Certificates, (ii) to furnish to the transferor Purchaser (and, in the case of any Acquiring Purchaser not registered in the Register, the Administrative Agent and the Company) either U.S. Internal Revenue Service Form 4224 or U.S. Internal Revenue Service Form 1001 (wherein such Transferee claims entitlement to complete exemption from U.S. federal withholding tax on all interest payments hereunder) and (iii) to agree (for the benefit of the transferor Purchaser, the Administrative Agent, the Company and the Servicer) to provide the transferor Purchaser (and, in the case of any Acquiring Purchaser not registered in the Register, the Administrative Agent, the Company and the Servicer) a new Form 4224 or Form 1001 upon the expiration or obsolescence of any previously delivered form and comparable statements in accordance with applicable U.S. laws and regulations and amendments duly executed and completed by such Transferee, and to comply from time to time with all applicable U.S. laws and regulations with regard to such withholding tax exemption. (g) Notwithstanding any other provisions herein, no transfer or assignment of any interests or obligations of any Purchaser hereunder or any grant of participations therein shall be permitted if such transfer, assignment or grant would result in a prohibited transaction under Section 4975 of the Internal Revenue Code or Section 406 of ERISA or cause the Trust Assets to be regarded as plan assets pursuant to 29 C.F.R. Section 2510.3-101, or require the Company or any Seller to file a registration statement with the Securities and Exchange Commission or to qualify the VFC Certificates under the "blue sky" laws of any state. XI.11. ADJUSTMENTS; SET-OFF. (a) If any Purchaser (a "BENEFITTED PURCHASER") shall at any time receive in respect of its Series 1996-1 Invested Amount any distribution of principal, interest, Commitment Fees or other fees, or any interest thereon, or receive any collateral in respect thereof (whether voluntarily or involuntarily, by set-off or otherwise) in a greater 58 proportion than any such distribution received by any other Purchaser, if any, in respect of such other Purchaser's Series 1996-1 Invested Amount, or interest thereon, such Benefitted Purchaser shall purchase for cash from the other Purchasers such portion of each such other Purchaser's interest in the VFC Certificates, or shall provide such other Purchasers with the benefits of any such collateral, or the proceeds thereof, as shall be necessary to cause such Benefitted Purchaser to share the excess payment or benefits of such collateral or proceeds ratably with each of the Purchasers; PROVIDED, HOWEVER, that if all or any portion of such excess payment or benefits is thereafter recovered from such Benefitted Purchaser, such purchase shall be rescinded, and the purchase price and benefits returned, to the extent of such recovery, but without interest. The Company agrees that each Purchaser so purchasing a portion of the VFC Certificateholders' Interest may exercise all rights of payment (including, without limitation, rights of set-off) with respect to such portion as fully as if such Purchaser were the direct holder of such portion. (a) In addition to any rights and remedies of the Purchasers provided by law, each Purchaser shall have the right, without prior notice to the Company, any such notice being expressly waived by the Company to the extent permitted by applicable law, upon any amount becoming due and payable by the Company hereunder or under the VFC Certificates to set-off and appropriate and apply against any and all deposits (general or special, time or demand, provisional or final), in any currency, and any other credits, indebtedness or claims, in any currency, in each case whether direct or indirect, absolute or contingent, matured or unmatured, at any time held or owing by such Purchaser to or for the credit or the account of the Company. Each Purchaser agrees promptly to notify the Company and the Administrative Agent after any such set-off and application made by such Purchaser; PROVIDED that the failure to give such notice shall not affect the validity of such set-off and application. XI.12. COUNTERPARTS. This Supplement may be executed in any number of counterparts and by the different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original, and all of which taken together shall constitute one and the same agreement. XI.13. NO BANKRUPTCY PETITION. Each Agent and each Purchaser hereby covenants and agrees that, prior to the date which is one year and one day after the later of (i) the last day of the Series 1996-1 Amortization Period and (ii) the last day of the amortization period of any other Outstanding Series, it will not institute against, or join any other Person in instituting against, the Company any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings, or other similar proceedings under any federal or state bankruptcy or similar law. XI.14. RATING OF VFC CERTIFICATES. If a Companion Series to the VFC Certificates shall not have been issued within the period ending one year after the Issuance Date, then, at the request of the Administrative Agent, the Servicer shall, at its own expense, cause the VFC Certificates to be rated by up to two Rating Agencies. 59 XI.15. LIMITATION ON ADDITION AND TERMINATION OF SELLERS. (a) Notwithstanding anything to the contrary contained in the Receivables Sale Agreement, the Company shall not consent to the addition of a Seller thereunder unless each of the following conditions shall have been satisfied: (i) Each of the conditions set forth in Section 3.02 of the Receivables Sale Agreement shall have been satisfied. (ii) The Company and each Agent shall have received copies of the Policies of such additional Seller, which Policies shall be in form and substance satisfactory to the Agents. (iii) The Company and each Agent shall have received confirmation (A) that there is no pending or, to their knowledge after due inquiry, threatened action or proceeding affecting such additional Seller before any Governmental Authority (I) that could reasonably be expected to have a Material Adverse Effect with respect to such additional Seller or (II) that purports to affect the legality, validity or enforceability of this Supplement, the Agreement or any other Transaction Document or any of the transactions contemplated hereby or thereby. (iv) The Company, the Trustee and each Agent shall have received evidence that the Rating Agency Condition shall have been satisfied with respect to the addition of such Seller. (v) The Company, the Trustee and each Agent shall have received a certificate prepared by a Responsible Officer of the Servicer certifying that after giving effect to the addition of such Seller, the Aggregate Target Receivables Amount shall equal or exceed the Aggregate Allocated Receivables Amount on the related Seller Addition Date. (vi) The Majority Purchasers shall have given their prior written consent to the addition of such Seller. (a) Notwithstanding anything to the contrary contained in the Receivables Sale Agreement, the Company shall not consent to any request made pursuant to Section 9.14 thereof, nor shall any Seller which is the subject of such request be terminated under the Receivables Sale Agreement, in each case unless (i) no Early Amortization Event, Potential Early Amortization Event or Potential Purchase Termination Event (as defined in the Receivables Sale Agreement) (other than with respect to the Seller to be so terminated) has occurred and is continuing (both before and after giving effect to such termination) and (ii) the Trustee shall have received prior notice of such termination (which notice shall be accompanied by a PRO FORMA Daily Report confirming that the Aggregate Target Receivables Amount equals or exceeds the Aggregate Allocated Receivables Amount, each calculated after giving effect to such termination and excluding all Receivables originated by the Seller to be terminated). 60 (b) Upon the termination of a Seller pursuant to Section 9.14 of the Receivables Sale Agreement and the foregoing paragraph (b), the calculation (including, without limitation, for purposes of the PRO FORMA calculations pursuant to paragraph (b) above) of the Aggregate Target Receivables Amount, the Aggregate Allocated Receivables Amount, the Series 1996-1 Required Subordinated Amount and all other amounts from which each such amount is directly or indirectly derived shall exclude in each case the Receivables originated by such terminated Seller. XI.16. LIMITATION ON DIVISION TRANSFERS. The Servicer hereby agrees that in determining the Aggregate Receivables Amount at any time pursuant to the Pooling and Servicing Agreements, it shall not include therein the Principal Amount of Receivables originated by any business division transferred to RS or any Affiliate thereof by US Foodservice Inc., a Delaware corporation, without the prior written consent of the Majority Purchasers (which consent shall not be unreasonably withheld). XII FINAL DISTRIBUTIONS XII.1. CERTAIN DISTRIBUTIONS. (a) Not later than 2:00 p.m., New York City time, on the Distribution Date following the date on which the proceeds from the disposition of the Receivables pursuant to subsection 7.2(b) of the Agreement are deposited into the Series 1996-1 Non-Principal Collection Sub- subaccount and the Series 1996-1 Principal Collection Sub-subaccount, the Trustee shall distribute such amounts pursuant to Article III of this Supplement. (a) Notwithstanding anything to the contrary in this Supplement or the Agreement, any distribution made pursuant to this Section shall be deemed to be a final distribution pursuant to Section 9.3 of the Agreement with respect to the VFC Certificates. IN WITNESS WHEREOF, the Company, the Servicer, the Trustee, the Administrative Agent, the Co-Agent and the Initial Purchasers have caused this Series 1996-1 Supplement to be duly executed by their respective officers as of the day and year first above written. RYKOFF-SEXTON FUNDING CORPORATION By:/s/ ----------------------------------- Name: Title: RYKOFF-SEXTON, INC., in its individual capacity and as Servicer By:/s/ ----------------------------------- Name: Title: BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Administrative Agent By:/s/ ----------------------------------- Name: Title: THE CHASE MANHATTAN BANK, N.A., as Co- Agent By:/s/ ----------------------------------- Name: Title: CHEMICAL BANK, not in its individual capacity but solely as Trustee By:/s/ ----------------------------------- Name: Title: 62 THE CHASE MANHATTAN BANK, N.A., as an Initial Purchaser By:/s/ ----------------------------------- Name: Title: BANK OF AMERICA ILLINOIS, as an Initial Purchaser By:/s/ ----------------------------------- Name: Title: SCHEDULE 1 COMMITMENTS Purchaser/Address Commitment - ----------------- ---------- Bank of America Illinois c/o BA Securities, Inc. 231 South LaSalle Street Chicago, Illinois 60697 $55,000,000 The Chase Manhattan Bank, N.A. 270 Park Avenue New York, New York 10017 $55,000,000 SCHEDULE 2 TRUST ACCOUNTS Account Account Number ------- -------------- Series 1996-1 Collection Subaccount 507-862406 Series 1996-1 Principal Collection Sub-subaccount 507-862503 Series 1996-1 Non-Principal Collection Sub-subaccount 507-862554 Series 1996-1 Accrued Interest Sub-subaccount 507-862597 Series 1996-1 Collection Subordinated Sub-subaccount 507-862600 EX-10.41-2 21 SERVICING AGREEMENT EXECUTION COPY --------------------------------------------------------------------------- ------------------------- RYKOFF-SEXTON FUNDING CORPORATION, as Company, RYKOFF-SEXTON, INC., as Servicer, ITS WHOLLY-OWNED SUBSIDIARIES NAMED HEREIN, as Sub-Servicers and CHEMICAL BANK, as Trustee ------------------------- SERVICING AGREEMENT Dated as of May 16, 1996 ------------------------- 2 --------------------------------------------------------------------------- TABLE OF CONTENTS Page ---- ARTICLE I DEFINITIONS . . . . . . . . . . . . . . . 1 1.1. Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.2. Other Definitional Provisions. . . . . . . . . . . . . . . . . . . . 2 ARTICLE II ADMINISTRATION AND SERVICING OF RECEIVABLES. . . . . . . . . . . . . . . . 2 2.1. Appointment of Servicer and Sub-Servicers. . . . . . . . . . . . . . 2 2.2. Servicing Procedures . . . . . . . . . . . . . . . . . . . . . . . . 3 2.3. Collections. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 2.4. Reconciliation of Deposits . . . . . . . . . . . . . . . . . . . . . 6 2.5. Servicing Compensation . . . . . . . . . . . . . . . . . . . . . . . 7 ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE SERVICER AND THE SUB-SERVICERS. . . . . . . . . . . 8 3.1. Corporate Existence; Compliance with Law . . . . . . . . . . . . . . 8 3.2. Corporate Power; Authorization . . . . . . . . . . . . . . . . . . . 8 3.3. Enforceability . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 3.4. No Legal Bar . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 3.5. No Material Litigation . . . . . . . . . . . . . . . . . . . . . . . 9 3.6. No Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 3.7. Servicing Ability. . . . . . . . . . . . . . . . . . . . . . . . . . 9 3.8. Location of Records. . . . . . . . . . . . . . . . . . . . . . . . 10 ARTICLE IV COVENANTS OF THE SERVICER. . . . . . . . . . . . 10 4.1. Delivery of Daily Reports. . . . . . . . . . . . . . . . . . . . . 10 4.2. Delivery of Monthly Settlement Statement . . . . . . . . . . . . . 10 4.3. Delivery of Quarterly Servicer's Certificate . . . . . . . . . . . 11 4.4. Delivery of Independent Public Accountants' Servicing Reports. . . 11 -i- Page ---- 4.5. No Guarantee or Assumption of Company's Liabilities. . . . . . . . 11 4.6. Extension, Amendment and Adjustment of Receivables; Amendment of and Compliance with Policies . . . . . . . . . . . . . . . . . . . 12 4.7. Protection of Certificateholders' Rights . . . . . . . . . . . . . 12 4.8. Security Interest. . . . . . . . . . . . . . . . . . . . . . . . . 12 4.9. Location of Records. . . . . . . . . . . . . . . . . . . . . . . . 13 4.10. Visitation Rights. . . . . . . . . . . . . . . . . . . . . . . . . 13 4.11. Lockbox Agreement; Lockbox Accounts. . . . . . . . . . . . . . . . 13 4.12. Delivery of Financial Statements . . . . . . . . . . . . . . . . . 14 4.13. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 ARTICLE V OTHER MATTERS RELATING TO THE SERVICER AND THE SUB-SERVICERS . . . 15 5.1. Merger, Consolidation, etc.. . . . . . . . . . . . . . . . . . . . 15 5.2. Indemnification of the Trust and the Trustee . . . . . . . . . . . 15 5.3. Servicer Not to Resign . . . . . . . . . . . . . . . . . . . . . . 16 5.4. Access to Certain Documentation and Information Regarding the Receivables. . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 ARTICLE VI SERVICER DEFAULTS. . . . . . . . . . . . . . 17 6.1. Servicer Defaults. . . . . . . . . . . . . . . . . . . . . . . . . 17 6.2. Trustee to Act; Appointment of Successor . . . . . . . . . . . . . 20 6.3. Waiver of Past Defaults. . . . . . . . . . . . . . . . . . . . . . 22 ARTICLE VII MISCELLANEOUS PROVISIONS . . . . . . . . . . . . 22 7.1. Amendment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 7.2. Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 7.3. Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . 22 7.4. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 7.5. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 7.6. Third-Party Beneficiaries. . . . . . . . . . . . . . . . . . . . . 23 7.7. Merger and Integration . . . . . . . . . . . . . . . . . . . . . . 23 7.8. Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 7.9. No Set-Off . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 7.10. No Bankruptcy Petition . . . . . . . . . . . . . . . . . . . . . . 23 7.11. Consequential Damages. . . . . . . . . . . . . . . . . . . . . . . 23 -ii- Page ---- Exhibit A Form of Quarterly Servicer's Certificate Exhibit B Form of Agreed Upon Procedures -iii- SERVICING AGREEMENT, dated as of May 16, 1996 among Rykoff-Sexton Funding Corporation, a Nevada corporation (the "COMPANY"); Rykoff-Sexton, Inc., a Delaware corporation ("RS"), as servicer (in such capacity, the "SERVICER"); each of the subsidiaries of RS from time to time parties hereto (each, a "SUB- SERVICER") and Chemical Bank, a New York banking corporation, not in its individual capacity, but solely as trustee (in such capacity, the "TRUSTEE"). W I T N E S S E T H : WHEREAS, the Company and the Sellers (as defined in the Pooling Agreement referred to below) have entered into a Receivables Sale Agreement, dated as of the date hereof (as amended, supplemented or otherwise modified from time to time, the "RECEIVABLES SALE AGREEMENT"); WHEREAS, pursuant to the Receivables Sale Agreement, the Sellers sell to the Company, and the Company purchases from the Sellers, all of the Sellers' right, title and interest in, to and under the Receivables (as defined in the Pooling Agreement referred to below) now existing or hereafter created and in the rights of the Seller in, to and under all Related Property related thereto; WHEREAS, the Company in turn has transferred the Receivables now existing or hereafter created and the rights of the Company in, to and under all Related Property related thereto to a master trust pursuant to a Pooling Agreement, dated as of the date hereof (as amended, supplemented or otherwise modified from time to time, the "POOLING AGREEMENT"), among the Company, the Servicer and the Trustee; and WHEREAS, the parties hereto wish to enter into this Agreement. NOW, THEREFORE, in consideration of the premises and of the mutual covenants herein contained, the parties hereto agree as follows: I DEFINITIONS I.1. DEFINITIONS. Unless otherwise defined herein, capitalized terms which are used herein shall have the meanings assigned to such terms in Section 1.1 of the Pooling Agreement and each Supplement thereto, including without limitation the Series 1996-1 Supplement dated as of the date hereof among the Company, the Servicer and the Trustee. 2 I.2. OTHER DEFINITIONAL PROVISIONS. (a) All terms defined herein or in the Pooling Agreement shall have their defined meanings when used in any certificate or other document made or delivered pursuant hereto unless otherwise defined therein. (a) As used herein and in any certificate or other document made or delivered pursuant hereto or thereto, accounting terms not defined in Section 1.1 of the Pooling Agreement, and accounting terms partly defined in Section 1.1 of the Pooling Agreement to the extent not defined, shall have the respective meanings given to them under GAAP. To the extent that the definitions of accounting terms herein are inconsistent with the meanings of such terms under GAAP, the definitions contained herein shall control. (b) The words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and Section, subsection, Schedule and Exhibit references contained in this agreement are references to Sections, subsections, Schedules and Exhibits in or to this Agreement unless otherwise specified. (c) The definitions contained in Section 1.1 of the Agreement are applicable to the singular as well as the plural forms of such terms and to the masculine, the feminine and the neuter genders of such terms. (d) Where reference is made in this Agreement or the Pooling Agreement to the principal amount of Receivables, such reference shall, unless explicitly stated otherwise, be deemed a reference to the Principal Amount (as such term is defined in Section 1.1 of the Pooling Agreement) of such Receivables. (e) Any reference herein or in any other Transaction Document to a provision of the Internal Revenue Code or ERISA shall be deemed a reference to any successor provision thereto. (f) All references herein to any agreement or instrument shall be deemed references to such agreement or instrument as amended, supplemented or otherwise modified from time to time unless there are any restrictions herein on the amendment, supplementation or modification of such agreement or instrument. II ADMINISTRATION AND SERVICING OF RECEIVABLES II.1. APPOINTMENT OF SERVICER AND SUB-SERVICERS. RS hereby agrees to act as the Servicer under the Pooling and Servicing Agreements, the Company and the Trustee hereby consent to RS's acting as the Servicer, and the Investor Certificateholders by their acceptance of the Certificates consent to RS's acting as the Servicer. In addition, RS hereby agrees to act as, the Company and the Trustee hereby consent to RS's being appointed to act as, 3 and the Investor Certificateholders by their acceptance of the Certificates consent to RS's being appointed to act as, such parties' agent to coordinate the servicing of the Receivables by the Sub-Servicers. In such agency capacity, the Servicer will have responsibility for the management of the servicing and receipt of Collections in respect of the Receivables and will have the authority to make any management decisions relating to the Receivables to the extent such authority is granted to the Servicer under any Pooling and Servicing Agreement. The Company, the Trustee and the Investor Certificateholders shall treat RS as the Servicer and may conclusively rely on the instructions, notices and reports of RS as Servicer for so long as RS is the Servicer. In addition, (x) each Sub- Servicer agrees to act as a Sub-Servicer under each Pooling and Servicing Agreement, (y) the Company and the Trustee hereby consent to such Sub-Servicer's acting as a Sub-Servicer and being appointed their agent to service and administer the Receivables originated by it, and (z) the Investor Certificateholders by their acceptance of the Certificates consent to such Sub- Servicer's acting as a Sub-Servicer and being appointed their agent to service and administer the Receivables originated by it. Each Sub-Servicer will be responsible, as directed by the Servicer, for the servicing and administration of the Receivables originated by such Sub-Servicer. II.2. SERVICING PROCEDURES. (a) The Servicer shall manage the servicing and administration of the Receivables, the collection of payments due under the Receivables and the charging off of any Receivables as uncollectible, all in accordance with the Policies and all the terms and provisions of the Pooling and Servicing Agreements. The Servicer shall have full power and authority, acting alone or through any party properly designated by it hereunder, to do any and all things in connection with such servicing and administration which it may deem necessary or desirable, but at all times subject to the terms of this Agreement and the other Transaction Documents. Without limiting the generality of the foregoing and subject to Section 6.1, the Servicer or its designee is hereby authorized and empowered (i) to give direction to the Trustee with respect to withdrawals from, and payments to, the Collection Account in accordance with the Daily Report and as otherwise specified in the Pooling and Servicing Agreements, (ii) to execute and deliver, on behalf of the Trust for the benefit of the Certificateholders, any and all instruments of satisfaction or cancellation, or of partial or full release or discharge, and all other comparable instruments, with respect to the Receivables and, after the delinquency of any Receivable and to the extent permitted under and in compliance with applicable Requirements of Law, to commence enforcement proceedings with respect to such Receivables and (iii) to make any filings, refilings, reports, notices, applications and registrations with, and to seek any consents or authorizations from, the Securities and Exchange Commission and any state securities authority on behalf of the Trust as may be necessary or advisable to comply with any federal or state securities or reporting requirements or laws. (a) Each Servicing Party will, at its cost and expense and as agent for the Company, the Trust and the Investor Certificateholders, use its best efforts to collect, consistent with its past practices, as and when the same becomes due, the amount owing on each Receivable with respect to which it is the Servicing Party. No Servicing Party will make any material changes that deviate from the Policies in its administrative, servicing and collection systems except (i) as expressly permitted by the terms of any Pooling and Servicing Agreement and (ii) after giving 4 written notice to the Trustee and the Rating Agencies of any such change. In the event of default under any Receivable, the responsible Servicing Party shall have the power and authority, on behalf of the Company and the Trust for the benefit of the Investor Certificateholders, to take such action in respect of such Receivable as such Servicing Party may deem advisable. In the enforcement or collection of any Receivable, the relevant Servicing Party shall be entitled to sue thereon (i) in its own name or (ii) if, but only if, the Company consents in writing (which consent shall not be unreasonably withheld), as agent for the Company. In no event shall any Servicing Party be entitled to take any action which would make the Company, the Trustee or the Investor Certificateholders a party to any litigation without the express prior written consent of such Person. (b) Without limiting the generality of the foregoing and subject to Section 6.2, each Servicing Party is hereby authorized and empowered to delegate any or all of its servicing, collection, enforcement and administrative duties hereunder with respect to the Receivables to a Person who agrees to conduct such duties in accordance with the Policies. Such Servicing Party shall notify the Company, the Trustee and any Rating Agency of the appointment of a designee as provided for herein; PROVIDED, HOWEVER, that, in the event that such delegation would reasonably be expected to adversely affect the ability of such Servicing Party or the Servicer to perform its obligations in the manner contemplated by any Pooling and Servicing Agreement, or otherwise to have a material adverse effect upon the Receivables taken as a whole, such Servicing Party shall give prior written notice to the Company, the Trustee, each Agent and the Rating Agencies of any such delegation, and prior to such delegation's being effective, such Servicing Party and the Servicer shall have received notice that the Rating Agency Condition shall be satisfied after giving effect to such delegation and shall have obtained the consent of the Company and each Agent to such delegation. No delegation of duties by a Servicing Party permitted hereunder will relieve such Servicing Party or the Servicer of its liability and responsibility with respect to such duties. (c) Except as provided in any Pooling and Servicing Agreement, neither any Servicing Party nor any Successor Servicer shall be obligated to use servicing procedures, offices, employees or accounts for servicing the Receivables transferred to the Company and, subsequently, to the Trust, which are separate from the procedures, offices, employees and accounts used by such Servicing Party or such Successor Servicer, as the case may be, in connection with servicing other receivables. (d) Each Servicing Party shall maintain reasonable and customary fidelity bond coverage insuring against losses through wrongdoing of its officers and employees who are involved in the servicing of the Receivables, including, without limitation, depositor's forgery. (e) Each Servicing Party shall comply with and perform its servicing obligations with respect to the Receivables in accordance with the contracts, if any, relating to the Receivables and the Policies, except insofar as any failure to so comply or perform would not have a Material Adverse Effect with respect to the Servicer. (f) No Servicing Party shall take any action to cause any Receivable to be evidenced by any "instrument" (other than an instrument which constitutes or together with a 5 security agreement constitutes "chattel paper" (each as defined in the UCC as in effect in any state in which the Company's or the applicable Seller's chief executive office or books and records relating to such Receivable are located)) or any title in bearer form except in connection with its enforcement or collection of a Defaulted Receivable, in which event such Servicing Party shall deliver such instrument to the Trustee as soon as reasonably practicable but in no event more than 5 days after the execution thereof. Each Servicing Party shall hold any chattel paper evidencing a Receivable as custodian for the Trustee. II.3. COLLECTIONS. (a) The Sub-Servicers, or the Servicer on their behalf, shall have instructed all Obligors to make all payments in respect of the Receivables to a Lockbox, a Lockbox Account or the Collection Account, except to the minimum extent that any Servicing Party, as of the date hereof, in the normal course of its business and consistent with past practices has directed such Obligors to remit payments by delivering cash, a check or other instrument to or in the care of the person delivering goods to such Obligor or to the business offices, agents or officers of any Servicing Party. Each Servicing Party also shall have established separate collection systems that are satisfactory to the Agents and, in any event, ensure that payments in respect of Excluded Receivables shall at all times remain separate from payments in respect of the Receivables. All available Collections received in a Lockbox shall, within one Business Day of receipt thereof, be deposited in a Lockbox Account. In the event that any payments in respect of the Receivables are made directly to any Servicing Party (including, without limitation, any employees thereof or independent contractors employed thereby), such Servicing Party shall, within one Business Day of receipt thereof, forward such amounts to a Lockbox, a Lockbox Account or the Collection Account (including by depositing instruments evidencing any such amounts into any such account) and, prior to forwarding such amounts, such Servicing Party shall hold such payments in trust as custodian for the Trustee. All immediately available funds deposited in a Lockbox Account shall be transferred by the relevant Lockbox Processor within one Business Day of receipt thereof to the Collection Account. Each of the Company and each Servicing Party represents, warrants and agrees that all Collections shall be collected, processed and deposited by it pursuant to, and in accordance with the terms of, the Pooling and Servicing Agreements. (a) Each Lockbox Agreement shall provide that the Lockbox Processor thereunder is irrevocably directed, and such Lockbox Processor irrevocably agrees, to (i) deposit funds received in the Lockbox directly into the Lockbox Account and (ii) transfer immediately available funds on deposit in the Lockbox Account within one Business Day of receipt thereof to the Trustee for deposit in the Collection Account. Each Lockbox Agreement shall be substantially in the form of Exhibit B to the Pooling Agreement or in such form as the Lockbox Processor party thereto employs in the ordinary course of its business for transactions of a type similar to the one contemplated by this Agreement. A new Lockbox Account may be designated by the Company and the Servicer; PROVIDED that the Lockbox Processor chosen to maintain such new Lockbox Account shall have entered into a Lockbox Agreement with the Company, the Servicer and the Trustee. The Company or the Servicer shall notify each Rating Agency of the designation of a new Lockbox Account. Prior to any resignation of the Lockbox Processor or termination of the Lockbox Processor by the Company or the Trustee, the Servicer hereby agrees to obtain a replacement Lockbox Processor, the unsecured and uncollateralized obligations of 6 which (or of its holding company parent) are rated in one of the three highest long-term or short-term rating categories by each Rating Agency rating such replacement Lockbox Processor, to serve under a Lockbox Agreement which is reasonably acceptable to the Trustee. (b) The Trustee shall administer amounts on deposit in the Collection Account, and the Servicer on behalf of the Trustee shall administer amounts on deposit in the Lockbox Accounts, in each case in accordance with the terms of the Pooling and Servicing Agreements. Each of the Company and each Servicing Party acknowledges and agrees that (i) it shall not have any right to withdraw any funds on deposit in the Collection Account or any Lockbox Account and (ii) all amounts deposited in the Collection Account or any Lockbox Account shall be under the sole dominion and control of the Trustee (subject to the Servicer's right to direct the application of such amounts as provided by the terms of any Pooling and Servicing Agreement). (c) As soon as practicable but in any event not later than the Business Day following the date that the Servicer determines, identifies and certifies in writing to the Trustee that any of the collected funds received in any of the Lockboxes, the Lockbox Accounts or the Collection Account do not constitute Collections on account of the Receivables, such monies which do not constitute such Collections shall be remitted to the applicable Seller to the extent such determination and identification is reasonably satisfactory to the Trustee. (d) All collections received or deposited in the Collection Account as "Collections" shall be deemed, for purposes of the Transaction Documents, to have been received or deposited as of the Business Day Received (as defined in the immediately succeeding sentence). As used herein, the term "BUSINESS DAY RECEIVED" shall mean (i) if funds are deposited in the Collection Account by 1:00 p.m., New York City time, such day of deposit and (ii) if funds are deposited in the Collection Account after 1:00 p.m., New York City time, the Business Day next following such day of deposit. (e) Unless otherwise required by law or unless an Obligor designates that a payment be applied to a specific Receivable, all Collections received from an Obligor shall be applied to the oldest Receivables of such Obligor. II.4. RECONCILIATION OF DEPOSITS. If in respect of a Collection of a Receivable any Servicing Party deposits into the Collection Account (a) a check received in respect of such Collection which check is not honored for any reason or (b) an amount that is less than or more than the actual amount of such Collection, such Servicing Party or the Servicer shall, in lieu of making a reconciling withdrawal or deposit, as the case may be, adjust the amount subsequently deposited into such Collection Account to reflect such dishonored check or mistake and notify the Trustee in writing of such adjustment. Any Receivable in respect of which a dishonored check is received shall be deemed not to have been paid; PROVIDED that no adjustments made pursuant to this Section 2.4 will change any amount previously reported pursuant to Section 4.2. II.5. SERVICING COMPENSATION. (a) As full compensation for its servicing activities hereunder and reimbursement for its expenses as set forth in subsection 2.5(b), the Servicer shall be entitled to receive on each Distribution Date for the preceding Settlement Period prior to the 7 termination of the Trust pursuant to Section 9.1 of the Pooling Agreement a servicing fee (the "SERVICING FEE"). The Servicing Fee shall be an amount equal to (i) the product of (A) the Servicing Fee Percentage and (B) the daily average aggregate Principal Amount of the Receivables in the Trust for such Settlement Period (or, if such Settlement Period is the initial Settlement Period, the aggregate Principal Amount of the Receivables at April 30, 1996) and (C) the number of days in such Settlement Period, DIVIDED BY (ii) 360. Except as otherwise set forth in the related Supplement, the share of the Servicing Fee allocable to each Outstanding Series for any Settlement Period shall be an amount equal to the product of (i) the Servicing Fee for such Settlement Period and (ii) a fraction (expressed as a percentage) (A) the numerator of which is the daily average Invested Amount for such Settlement Period with respect to such Series and (B) the denominator of which is the daily average Aggregate Invested Amount for such Settlement Period (with respect to any such Series, the "MONTHLY SERVICING FEE"); PROVIDED, HOWEVER, that if on any day RS or any Affiliate thereof is acting as the Servicer and an Early Amortization Event has occurred and is continuing with respect to any Outstanding Series, payment of the Monthly Servicing Fee with respect to such Series shall be deferred until all amounts due under the Investor Certificates of such Series have been paid in full. The Servicing Fee shall be payable to the Servicer solely pursuant to the terms of, and to the extent amounts are available for payment under, Article III of the Pooling Agreement. (a) The Company hereby directs the Servicer to pay amounts due to the Trustee pursuant to Section 8.5 of the Pooling Agreement and the reasonable fees and disbursements of independent accountants, including the Trustee's reasonable out-of-pocket expenses relating to the Trustee's inspections, if any, of the Servicer's servicing facility in connection with the Trustee's role as potential Successor Servicer, which inspections shall occur not more frequently than once per calendar year, and all other fees and expenses of the Trust (including counsel fees, if any) not expressly stated herein to be for the account of the Certificateholders; PROVIDED, HOWEVER, that in no event shall the Servicer be liable for any federal, state or local income or franchise tax, or any interest or penalties with respect thereto, assessed on the Trust, the Trustee or the Certificateholders except in accordance with Section 5.2 and as otherwise expressly provided herein. Notwithstanding anything to the contrary herein or in any other Pooling and Servicing Agreement, in the event that the Servicer fails to pay any amount due to the Trustee pursuant to Section 8.5 of the Pooling Agreement, or following the commencement and continuance of an Early Amortization Period, the Trustee shall be entitled, in addition to any other rights it may have under law and under the Pooling Agreement, to receive directly such amounts owing to it under the Pooling and Servicing Agreements from, and in the same order of priority as, the Servicing Fee before payment to the Servicer of any portion thereof; PROVIDED, that in the event the Servicer shall have elected to waive its rights to payment of the Servicing Fee or the Servicing Fee is deferred pursuant to subsection 2.5(a), the Trustee shall nonetheless be entitled to receive such amounts from payments which would ordinarily be applied to the payment of the Servicing Fee, in the same order of priority as though such Servicing Fee were payable. The Servicer shall be required to pay expenses for its own account, and shall not be entitled to any payment therefor other than the Servicing Fee. Nothing contained herein shall be construed to limit the obligation of the Servicer or the Company to pay any amounts due the Trustee pursuant to Section 8.5 of the Pooling Agreement. 8 III REPRESENTATIONS AND WARRANTIES OF THE SERVICER AND THE SUB-SERVICERS As of (a) the Initial Closing Date and (b) each Issuance Date, each Servicing Party hereby makes the following representations and warranties to each of the other parties hereto: III.1. CORPORATE EXISTENCE; COMPLIANCE WITH LAW. Such Servicing Party (i) is a corporation duly incorporated, validly existing and in good standing under the laws of the jurisdiction of its organization, (ii) has all requisite corporate power and authority, and all legal right, to own and operate its properties, to lease the properties it operates as lessee and to conduct its business as now conducted, (iii) is duly qualified as a foreign corporation to do business and in good standing (or is exempt from such requirements) under the laws of each jurisdiction in which the servicing of Receivables as required by this Agreement requires such qualification and (iv) is in compliance with all Requirements of Law, except, in the case of clauses (ii), (iii) and (iv), to the extent that a failure to have such power, authority or right, to qualify and be in good standing or to comply, as the case may be, would not be reasonably likely to have a Material Adverse Effect with respect to such Servicing Party or the Servicer. III.2. CORPORATE POWER; AUTHORIZATION. Such Servicing Party has the corporate power and authority, and the legal right, to execute, deliver and perform this Agreement and the other Transaction Documents to which it is a party and has taken all necessary corporate action to authorize the execution, delivery and performance of this Agreement and the other Transaction Documents to which it is a party. No consent or authorization of, filing with, notice to or other act by or in respect of, any Governmental Authority or any other Person is required in connection with the execution, delivery, performance, validity or enforceability of this Agreement and the other Transaction Documents to which it is a party by or against such Servicing Party other than (i) those consents which have duly been obtained or made and are in full force and effect on the Initial Closing Date or the relevant Issuance Date, as the case may be, (ii) any filings of UCC-1 financing statements necessary to perfect the Company's or the Trust's interest in the Receivables and the Related Property, (iii) those that may be required under state securities or "blue sky" laws in connection with the offering or sale of Certificates and (iv) any such consent, authorization, filing, notice or other act, the absence of which would not be reasonably likely to have a Material Adverse Effect with respect to such Servicing Party or the Servicer. This Agreement and each other Transaction Document to which it is a party have been duly executed and delivered on behalf of such Servicing Party. III.3. ENFORCEABILITY. This Agreement and each other Transaction Document to which it is a party constitute the legal, valid and binding obligation of such Servicing Party enforceable against it in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect affecting the enforcement of creditors' rights generally and except as such 9 enforceability may be limited by general principles of equity (whether considered in a proceeding at law or in equity). III.4. NO LEGAL BAR. The execution, delivery and performance of this Agreement and each other Transaction Document to which it is a party will not violate any Requirement of Law or Contractual Obligation of such Servicing Party (other than any violation which would not be reasonably likely to have a Material Adverse Effect with respect to such Servicing Party or the Servicer), and will not result in, or require, the creation or imposition of any Lien (other than Permitted Liens) on any of its properties or revenues pursuant to any such Requirement of Law or Contractual Obligation. III.5. NO MATERIAL LITIGATION. (a) Except as disclosed in RS's Form 10-Q for the quarter ended January 27, 1996, there are no actions, suits, investigations or proceedings at law or in equity or by or before any arbitrator, court or Governmental Authority now pending or, to the knowledge of such Servicing Party, threatened against or affecting it or any of its properties, revenues or rights which (i) involve this Agreement, any of the other Transaction Documents to which such Servicing Party is a party or any of the transactions contemplated hereby or thereby or (ii) if adversely determined, could individually or in the aggregate result in a Material Adverse Effect with respect to such Servicing Party or the Servicer. (b) Such Servicing Party is not in default under or with respect to any Requirement of Law where such default would be reasonably likely to have a Material Adverse Effect with respect to such Servicing Party or the Servicer. The transactions hereunder and the use of the proceeds thereof will not violate any Requirement of Law. III.6. NO DEFAULT. Such Servicing Party is not in default under or with respect to any of its Contractual Obligations in any respect which would be reasonably likely to have a Material Adverse Effect with respect to such Servicing Party or the Servicer. No Servicer Default or Potential Servicer Default has occurred and is continuing. III.7. SERVICING ABILITY. As of the related Issuance Date, there has not been since the date of this Agreement any material adverse change in the ability of such Servicing Party to perform its obligations as Servicer under any Transaction Document. III.8. LOCATION OF RECORDS. The offices at which such Servicing Party keeps its records concerning the Receivables serviced by it either (i) are located at the addresses set forth on Schedule II to the Receivables Sale Agreement or (ii) have been notified to the Company and the Trustee in accordance with the provisions of Section 4.9. The chief executive office of such Servicing Party is located at one of such locations and is the place where such Servicing Party is "located" for the purposes of Section 9-103(3)(d) of the UCC as in effect in the State of New York. 10 IV COVENANTS OF THE SERVICER AND THE SUB-SERVICERS IV.1. DELIVERY OF DAILY REPORTS. Unless otherwise specified in the Supplement with respect to any Series, for each Business Day (a "REPORTED DAY") and with respect to each Outstanding Series, the Servicer shall submit to the Trustee and the relevant Agent no later than 1:00 p.m., New York City time, on the second Business Day following each Reported Day, a written report substantially in the form attached to the related Supplement of each such Series (the "DAILY REPORT") setting forth for the Reported Day total Collections, Receivables and Eligible Receivables created, and such other information as the Trustee or such Agent may reasonably request. The Daily Report may be delivered in an electronic format mutually agreed upon by the Servicer and the Trustee, or pending such agreement, by facsimile. By delivery of a Daily Report, the Servicer shall be deemed to have made a representation and warranty that all information set forth therein is true and correct. IV.2. DELIVERY OF MONTHLY SETTLEMENT STATEMENT. Unless otherwise specified in the Supplement with respect to any Outstanding Series, the Servicer hereby covenants and agrees that it shall deliver to the Trustee, each Agent and each Rating Agency by 11:00 a.m., New York City time, on each Settlement Report Date, a certificate of a Responsible Officer of the Servicer substantially in the form attached to the related Supplement of each such Series (a "MONTHLY SETTLEMENT STATEMENT") setting forth, as of the last day of the Settlement Period most recently ended and for such Settlement Period,(a) the information described in the form of such Monthly Settlement Statement, with such changes as may be agreed to by the Servicer and the Trustee, subject to satisfaction of the Rating Agency Condition (unless a Responsible Officer of the Servicer certifies that such changes could not reasonably be expected to have a materially adverse effect on the interests of the Trust or the Investor Certificateholders for the applicable Series under the Transaction Documents) and (b) such other information as the Trustee may reasonably request. Such certificate shall include a certification by a Responsible Officer of the Servicer that, to the best of such Responsible Officer's knowledge, the information contained therein is true and correct and the Servicer has performed in all material respects all of its obligations under each Transaction Document throughout such preceding Settlement Period (or, if there has been a material default in the performance of any such obligation, specifying each such default known to such officer and the nature and status thereof). A copy of each Monthly Settlement Statement may be obtained by any Certificateholder upon a request in writing to the Trustee addressed to the Corporate Trust Office. IV.3. DELIVERY OF QUARTERLY SERVICER'S CERTIFICATE. The Servicer agrees that it shall deliver to the Trustee, each Agent and each Rating Agency, a certificate of a Responsible Officer of the Servicer, substantially in the form of Exhibit A hereto, stating that: (a) a review of the activities of each of the Company and the Servicer during the preceding calendar quarter (or in the case of the first such certificate issued after the Initial Closing Date, during the period from the Initial Closing Date) and of its 11 performance under each Transaction Document was made under the supervision of such Responsible Officer; and (b) to the best of such Responsible Officer's knowledge, based on such review, (i) each of the Company and the Servicer has performed in all material respects its obligations under each Transaction Document throughout the period covered by such certificate (or, if there has been a material default in the performance of any such obligation, specifying each such default known to such Responsible Officer and the nature and status thereof) and (ii) each Daily Report and Monthly Settlement Statement delivered during such period was accurate and correct in all material respects, except as specified in such certificate. Such certificate shall be delivered by the Servicer within 45 days after the end of each calendar quarter commencing with the quarter ending June 30, 1996. A copy of such certificate may be obtained by any Certificateholder by a request in writing to the Trustee addressed to the Corporate Trust Office. IV.4. DELIVERY OF INDEPENDENT PUBLIC ACCOUNTANTS' SERVICING REPORTS. The Servicer shall cause Independent Public Accountants to furnish to the Company, the Trustee and each Rating Agency within 75 days following the last day of each fiscal year of the Servicer (commencing with the fiscal year ending June 30, 1997) a letter to the effect that such firm has performed certain agreed upon procedures (as set forth in Exhibit B hereto) relating to the Servicer and each Sub-Servicer with respect to the Receivables and each such Person's performance hereunder during the preceding fiscal year and describing such firm's findings with respect to such procedures. A copy of such report may be obtained by any Certificateholder upon a request in writing to the Trustee addressed to the Corporate Trust Office. IV.5. NO GUARANTEE OR ASSUMPTION OF COMPANY'S LIABILITIES. Each Servicing Party hereby covenants and agrees that it will not guarantee or assume the obligations or liabilities of the Company under the Pooling and Servicing Agreements, or any other obligations or liabilities of the Company, in an aggregate amount exceeding $25,000 at any one time outstanding. IV.6. EXTENSION, AMENDMENT AND ADJUSTMENT OF RECEIVABLES; AMENDMENT OF AND COMPLIANCE WITH POLICIES. (a) Each Servicing Party hereby covenants and agrees with the Trustee that it shall not extend, rescind, cancel, amend or otherwise modify, or attempt or purport to extend, rescind, cancel, amend or otherwise modify, the terms of, or grant any Dilution Adjustment to, any Receivable, or otherwise take any action which is intended to cause or permit an Eligible Receivable to cease to be an Eligible Receivable, except in any such case (i) in accordance with the terms of the Policies, (ii) as required by any Requirement of Law or (iii) in the case of any Dilution Adjustments (whether or not permitted by any other clause of this sentence), upon the payment by or on behalf of the applicable Seller of a Seller Adjustment Payment pursuant to Section 2.05 of the Receivables Sale Agreement. Any Dilution Adjustment authorized to be made pursuant to the preceding sentence shall result in the reduction, on the Business Day on which such Dilution Adjustment arises or is identified, in the aggregate Principal 12 Amount of Receivables used to calculate the Aggregate Receivables Amount. If, as a result of such a reduction, the Aggregate Receivables Amount is less than the Aggregate Target Receivables Amount, the Company (in addition to the obligation of the applicable Seller under the Receivables Sale Agreement in respect of such Dilution Adjustment) shall be required to pay into the Series Principal Collection Sub-subaccount with respect to each Outstanding Series in immediately available funds within one Business Day of such determination such Series' PRO RATA share of the amount (the "CASH DILUTION PAYMENT") by which the Aggregate Target Receivables Amount exceeds the Aggregate Receivables Amount. (a) No Servicing Party shall make or permit to be made any change or modification to the Policies in any material respect, except (i) if such changes or modifications are necessary under any Requirement of Law, (ii) if such changes or modifications would not reasonably be expected to have a Material Adverse Effect with respect to the Servicer or (iii) if the Rating Agency Condition is satisfied with respect thereto. The Servicer shall provide notice to the Company, the Trustee and each Rating Agency of any modification of the Policies. (b) Each Servicing Party shall perform its obligations in accordance with and comply in all material respects with the Policies. IV.7. PROTECTION OF CERTIFICATEHOLDERS' RIGHTS. Each Servicing Party hereby agrees with the Trustee that it shall take no action, nor intentionally omit to take any action, which could reasonably be expected to materially adversely impair the rights, remedies or interests of the Certificateholders under the Transaction Documents in respect of the Receivables, nor shall it reschedule, revise or defer payments due on any Receivable except in accordance with the Policies or Section 4.6 above. IV.8. SECURITY INTEREST. Each Servicing Party hereby covenants and agrees that it shall not sell, pledge, assign or transfer to any other Person, or grant, create, incur, assume or suffer to exist any Lien on, any Receivable sold and assigned to the Company or the Trust, whether now existing or hereafter created, or any interest therein, and such Servicing Party shall defend the right, title and interest of the Company and the Trust in, to and under any Receivable sold and assigned to the Company or the Trust, whether now existing or hereafter created, against all claims of third parties claiming through or under such Servicing Party or the Company; PROVIDED, HOWEVER, that nothing in this Section 4.8 shall prevent or be deemed to prohibit any Servicing Party from suffering to exist upon any of the Receivables any Permitted Liens described in clauses (i) and (v) of the definition thereof. IV.9. LOCATION OF RECORDS. Each Servicing Party hereby covenants and agrees that it (a) shall not move its chief executive office or any of the offices where it keeps its records with respect to the Receivables outside of the location specified in respect thereof on Schedule II to the Receivables Sale Agreement, in any such case, without giving 30 days' prior written notice to the Company, the Trustee and the Rating Agencies and (b) shall promptly take all actions reasonably required (including but not limited to all filings and other acts necessary or reasonably requested by the Trustee as being advisable under the UCC) in order to continue the valid and enforceable interest of the Trust in all Receivables now owned or hereafter created. 13 IV.10. VISITATION RIGHTS. (a) Each Servicing Party shall, at any reasonable time during normal business hours on any Business Day and from time to time, upon reasonable prior notice, according to such Servicing Party's normal security and confidentiality requirements, permit (i) the Company, the Trustee, any Agent or any of their respective agents or representatives (A) to examine and make copies of and abstracts from the records, books of account and documents (including computer tapes and disks) of such Servicing Party relating to the Receivables and (B) following the termination of the appointment of such Servicing Party, to be present at the offices and properties of such Servicing Party to administer and control the Collection of the Receivables and (ii) the Company, the Trustee, any Agent or any of their respective agents or representatives to visit the properties of such Servicing Party to discuss the affairs, finances and accounts of such Servicing Party relating to the Receivables or such Servicing Party's performance hereunder or under any of the other Transaction Documents to which it is a party with any of its officers or directors and with its independent certified public accountants; PROVIDED that the Company, the Trustee or such Agent, as the case may be, shall notify such Servicing Party prior to any contact with such accountants and shall give such Servicing Party the opportunity to participate in such discussions. (b) Each Servicing Party shall provide the Trustee with such other information as the Trustee may reasonably request in connection with the fulfillment of the Trustee's obligations under any Pooling and Servicing Agreement. IV.11. LOCKBOX AGREEMENT; LOCKBOX ACCOUNTS. The Servicer shall (a) maintain, and keep in full force and effect, each Lockbox Agreement, except to the extent otherwise permitted under the terms of the Transaction Documents, and (b) ensure that each related Lockbox Account shall be free and clear of, and defend each such Lockbox Account against, any writ, order, stay, judgment, warrant of attachment or execution or similar process. IV.12. DELIVERY OF FINANCIAL STATEMENTS. The Servicer shall furnish to the Trustee and the Rating Agencies: (a) as soon as available, but in any event not later than 95 days after the end of each fiscal year of RS, and so long as RS is the Servicer, a copy of the audited consolidated balance sheets of RS as at the end of such fiscal year and the related consolidated statements of operations, shareholders' equity and cash flows of RS for such fiscal year, setting forth in each case in comparative form the figures for the previous fiscal year (except, in the case of the audited financial statements for the 1997 fiscal year, such financial statements will include a footnote describing revenues and operating income for the preceding fiscal year (which shall reflect any significant acquisitions occurring during such year)), and accompanied by the opinion of Arthur Andersen & Co. LLP or another nationally-recognized independent public accounting firm, which report shall state that such consolidated financial statements present fairly the financial position and results of operations and changes in cash flow for the periods indicated in conformity with GAAP applied on a basis consistent with prior years. Such opinion shall not be qualified or limited because of a restricted or limited examination by such accountant of any material 14 portion of RS's or any of its Subsidiaries' records and shall be delivered to the Agents and the Purchasers pursuant to a reliance agreement between the Agents and the Purchasers, on the one hand, and such accounting firm, on the other hand, in form and substance reasonably satisfactory to the Agents; and (b) as soon as practicable, but in any event not later than 50 days after the end of each fiscal quarter, a copy of the unaudited consolidated balance sheets of RS and the Sellers as at the end of such quarter and the related consolidated statements of operations, shareholders' equity and cash flows of RS and the Sellers for such fiscal quarter, and for the elapsed portion of the fiscal year then ended, certified by an appropriate Responsible Officer as being complete and correct and fairly presenting the financial position and the results of operations of the Servicer and the Sellers, setting forth in each case in comparative form the figures as of and for the corresponding dates and periods in the previous fiscal year (accompanied in the case of the fiscal 1997 quarterly financial statements by a footnote describing revenues and operating income for the prior periods (which shall reflect any significant acquisitions occurring during such prior periods)). All such financial statements shall be complete and correct in all material respects and shall be prepared in reasonable detail and in accordance with GAAP applied consistently throughout the periods reflected therein and with prior periods (except as approved by such accountants or officer, as the case may be, and disclosed therein). IV.13. NOTICES. The Servicer shall furnish to the Company, the Trustee and each Rating Agency, promptly upon a Responsible Officer of the Servicer obtaining knowledge of the occurrence of any Purchase Termination Event, Potential Purchase Termination Event (each as defined in the Receivables Sale Agreement), Early Amortization Event, Potential Early Amortization Event, Servicer Default or Potential Servicer Default, written notice thereof. V OTHER MATTERS RELATING TO THE SERVICER AND THE SUB-SERVICERS V.1. MERGER, CONSOLIDATION, ETC. No Servicing Party shall consolidate with or merge into any other corporation or convey or transfer its properties and assets substantially as an entirety to any Person (other than the Servicer or another Servicing Party), unless: (a) the corporation formed by such consolidation or into which such Servicing Party is merged or the Person which acquires by conveyance or transfer the properties and assets of such Servicing Party substantially as an entirety shall be a corporation organized and existing under the laws of the United States of America or any State thereof or the District of Columbia, and, if such Servicing Party is not the surviving entity, such corporation shall assume, without the execution or filing of any paper or any further act on the part of any of the parties hereto (except as may be required in the context of an acquisition by conveyance or transfer of the properties and assets of such Servicing Party 15 substantially as an entirety to such other Person), the performance of every covenant and obligation of such Servicing Party hereunder; and (b) such Servicing Party has delivered to the Trustee an officer's certificate executed by a Vice President or more senior officer and an Opinion of Counsel addressed to the Trust and the Trustee, each stating (i) that such consolidation, merger, conveyance or transfer complies with this Section 5.1 and (ii) that all conditions precedent herein provided for relating to such transaction have been complied with; PROVIDED that such Opinion of Counsel, in the case of clause (ii) above, may, to the extent that such opinion concerns questions of fact, rely on such officer's certificate with respect to such questions of fact. V.2. INDEMNIFICATION OF THE TRUST AND THE TRUSTEE. (a) The Servicer hereby agrees to indemnify and hold harmless the Trust and the Trustee, for the benefit of the Certificateholders and the Trustee and its directors, officers, agents and employees (an "INDEMNIFIED PERSON"), from and against any loss, liability, expense, damage or injury suffered or sustained by reason of any acts, omissions or alleged acts or omissions arising out of, or relating to, activities of the Servicer pursuant to any Pooling and Servicing Agreement to which it is a party, including but not limited to any judgment, award, settlement, reasonable attorneys' fees and other reasonable costs or expenses incurred in connection with the defense of any actual or threatened action, proceeding or claim; PROVIDED that the Servicer shall not so indemnify any Indemnified Person for any loss, liability, damage, injury, cost or expense of such Indemnified Person (i) arising solely from a default by an Obligor with respect to any Receivable (other than arising out of (A) any discharge, claim, offset or defense (other than discharge in bankruptcy of the Obligor) of the Obligor to the payment of any Purchased Receivable (as defined in the Receivables Sale Agreement) arising solely from the actions of the Servicer (including, without limitation, a defense based on such Purchased Receivable's not being a legal, valid and binding obligation of such Obligor enforceable against it in accordance with its terms), except to the extent permitted hereunder, or (B) a failure by the Servicer to perform its duties or obligations under this Agreement), or (ii) to the extent that such liability, cost or expense arises from the gross negligence (or, in the case of the Trustee, negligence), bad faith or wilful misconduct of such Indemnified Person or any other Indemnified Person (or any of their respective directors, officers, agents or employees). The provisions of this indemnity shall run directly to, and be enforceable by, an injured party and shall survive the termination of this Agreement and the resignation of the Servicer. (a) In addition to and without giving effect to any limitations set forth in subsection (a) above, the Servicer agrees to pay, indemnify and hold each Indemnified Person harmless from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may at any time be imposed on, incurred by or asserted against such Indemnified Person in any way relating to or arising out of any Servicing Party's breach of any covenant contained in subsections 2.2(f), 2.2(g), 4.6, 4.7 or 4.8 with respect to any Receivable which materially and adversely affects the interest of the Trust or the Investor Certificateholders pursuant to the Transaction 16 Documents in any Receivable or the collectibility of any Receivable (an "INDEMNIFICATION EVENT"). (b) The Servicer shall indemnify the relevant Indemnified Person for such affected Receivable pursuant to subsection 5.2(b) by depositing into the Collection Account in immediately available funds no later than the next Settlement Date occurring at least 30 days after receipt by the Servicer of written notice of an Indemnification Event given by the applicable Seller, the Company or the Trustee or upon a Responsible Officer of the Servicer obtaining knowledge of an Indemnification Event, an amount equal to the outstanding Principal Amount of such Receivable (the "SERVICER INDEMNIFICATION AMOUNT"). Upon each such indemnification by the Servicer, the Trust shall automatically and without further action be deemed to transfer, assign, and set over, and otherwise convey to the Servicer, without recourse, representation or warranty, all right, title and interest of the Trust in and to such Receivable, all monies due or to become due with respect thereto and all proceeds thereof; and such Receivable shall be treated by the Trust as collected in full as of the date on which it was transferred. The Trustee shall execute such documents and instruments of transfer or assignment and take such other actions as shall be reasonably requested by the Servicer to effect the conveyance of any Receivable pursuant to this subsection. The obligation of the Servicer to indemnify the Trust for any such Receivables shall constitute the sole remedy respecting any breach of the covenants set forth in subsection 2.2(f), 2.2(g), 4.6, 4.7 or 4.8 with respect to such Receivables available to Certificateholders and the Trustee on behalf of Certificateholders. V.3. SERVICER NOT TO RESIGN. The Servicer shall not resign from the obligations and duties hereby imposed on it except (a) upon determination that (i) the performance of its duties hereunder is no longer permissible under applicable law and (ii) there is no reasonable action which the Servicer could take to make the performance of its duties hereunder permissible under applicable law or (b) if the Servicer is terminated as Servicer pursuant to Section 6.1. Any such determination permitting the resignation of the Servicer shall be evidenced as to clause (a)(i) above by an Opinion of Counsel to such effect delivered to the Trustee. No such resignation shall become effective until a Successor Servicer or the Trustee shall have assumed the responsibilities and obligations of the Servicer in accordance with Section 6.2. The Trustee, the Company and each Rating Agency shall be notified of such resignation. V.4. ACCESS TO CERTAIN DOCUMENTATION AND INFORMATION REGARDING THE RECEIVABLES. The Servicer and the other Servicing Parties will hold in trust for the Trustee at their respective offices such computer programs, books of account and other records as are reasonably necessary to enable the Trustee to determine at any time the status of the Receivables and all collections and payments in respect thereof (including, without limitation, an ability to recreate records evidencing Receivables in the event of the destruction of the originals thereof). 17 VI SERVICER DEFAULTS VI.1. SERVICER DEFAULTS. If, with respect to any Servicing Party, any one of the following events (a "SERVICER DEFAULT") shall occur and be continuing: (a) failure by the Servicer to deliver, within two Business Days of the earlier date set forth below in clause (i) or (ii), any Daily Report or, within three Business Days of the earlier date set forth below in clause (i) or (ii), any Monthly Settlement Statement, in each case conforming in all material respects to the requirements of Section 4.1 or 4.2, as the case may be, after the earlier to occur of, in each case, (i) the date upon which a Responsible Officer of the Servicer obtains knowledge of the Servicer's failure to deliver such a conforming Daily Report or Monthly Settlement Statement when due under Section 4.1 or 4.2 and (ii) the date on which written notice of the Servicer's failure to deliver such a conforming Daily Report or Monthly Settlement Statement when due under Section 4.1 or 4.2, requiring the same to be remedied, shall have been given to the Servicer by the Company or the Trustee, or to the Company, the Servicer and the Trustee by holders of Investor Certificates evidencing 25% or more of the Aggregate Invested Amount or by any Agent; (b) failure by such Servicing Party to pay any amount required to be paid by it under the Agreement or to give any direction with respect to the allocation or transfer of funds under any Pooling and Servicing Agreement, in each case on or before the date occurring five Business Days after the earlier to occur of (i) the date upon which a Responsible Officer of such Servicing Party obtains knowledge of such failure or (ii) the date on which written notice of such failure, requiring the same to be remedied, shall have been given to such Servicing Party by the Company or the Trustee, or to the Company, the Servicer and the Trustee by holders of Investor Certificates evidencing 25% or more of the Aggregate Invested Amount or by any Agent; (c) failure on the part of such Servicing Party duly to observe or perform in any material respect any other covenants or agreements of such Servicing Party set forth in any Pooling and Servicing Agreement, which failure has a material adverse effect on the holders of any Outstanding Series or on the collectibility of the Receivables as a whole and which material adverse effect continues unremedied until 30 days after the earlier to occur of (i) the date upon which a Responsible Officer of such Servicing Party obtains knowledge of such failure or (ii) the date on which written notice of such failure, requiring the same to be remedied, shall have been given to the Company and the Servicer by the Trustee, or to the Company, the Servicer and the Trustee by holders of Investor Certificates evidencing 25% or more of the Aggregate Invested Amount or by any Agent; PROVIDED that no Servicer Default shall be deemed to occur under this subsection (c) if any Servicing Party shall have complied with the provisions of subsections 5.2(b) and (c) with respect thereto; 18 (d) any representation, warranty or certification made by such Servicing Party in any Pooling and Servicing Agreement or in any certificate delivered pursuant thereto shall prove to have been incorrect when made or deemed made, which incorrectness has a material adverse effect on the holders of any Outstanding Series or on the collectibility of the Receivables as a whole and which material adverse effect continues unremedied until 30 days after the earlier to occur of (i) the date upon which a Responsible Officer of such Servicing Party obtains knowledge of such failure or (ii) the date on which written notice of such failure, requiring the same to be remedied, shall have been given to the Company and the Servicer by the Trustee, or to the Company, the Servicer and the Trustee by holders of Investor Certificates evidencing 25% or more of the Aggregate Invested Amount or by any Agent; PROVIDED that no Servicer Default shall be deemed to occur under this subsection (d) if any Servicing Party shall have complied with the provisions of subsections 5.2(b) and (c) with respect thereto; (e) (i) such Servicing Party shall commence any case, proceeding or other action (A) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts, or (B) seeking appointment of a receiver, trustee, custodian or other similar official for it or for all or any substantial part of its assets, or such Servicing Party shall make a general assignment for the benefit of its creditors; or (ii) there shall be commenced against such Servicing Party any case, proceeding or other action of a nature referred to in clause (i) above which (A) results in the entry of an order for relief or any such adjudication or appointment or (B) remains undismissed, undischarged or unbonded for a period of 60 days; or (iii) there shall be commenced against such Servicing Party any case, proceeding or other action seeking issuance of a warrant of attachment, execution, distraint or similar process against all or any substantial part of its assets which results in the entry of an order for any such relief which shall not have been vacated, discharged, or stayed or bonded pending appeal within 60 such days from the entry thereof; or (iv) such Servicing Party shall take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth in clauses (i), (ii), or (iii) above; or (v) such Servicing Party shall generally not, or shall be unable to, or shall admit in writing its inability to, pay its debts as they become due; or (f) there shall have occurred and be continuing a Purchase Termination Event under the Receivables Sale Agreement; then, in the event of any Servicer Default, so long as the Servicer Default shall not have been remedied (or waived in accordance with the terms of the Transaction Documents), the Trustee may, and at the written direction of the holders of Investor Certificates evidencing more than 50% of the Aggregate Invested Amount voting as a single class, the Trustee shall, by notice then given in writing to such Servicing Party, each Agent and each Rating Agency (a "TERMINATION NOTICE"), terminate all or any part of the rights and obligations of such Servicing Party as Servicer or as a 19 Sub-Servicer, as the case may be, under the Pooling and Servicing Agreements. Notwithstanding anything to the contrary in this Section 6.1, a delay in or failure of performance referred to under clause (b) above for a period of 10 Business Days after the applicable grace period or a delay in or failure of performance referred to under clauses (a), (c) or (d) above for a period of 30 Business Days after the applicable grace period shall not constitute a Servicer Default, if such delay or failure could not have been prevented by the exercise of reasonable diligence by such Servicing Party and such delay or failure was caused by a Force Majeure Delay. After receipt by a Servicing Party of a Termination Notice, and on the date that a Successor Servicer shall have been appointed by the Trustee pursuant to Section 6.2, all authority and power of such Servicing Party under any Pooling and Servicing Agreement to the extent specified in such Termination Notice shall pass to and be vested in a Successor Servicer (a "SERVICE TRANSFER"); and, without limitation, the Trustee is hereby authorized and empowered (upon the failure of a Servicing Party to cooperate) to execute and deliver, on behalf of such Servicing Party, as attorney-in-fact or otherwise, all documents and other instruments upon the failure of such Servicing Party to execute or deliver such documents or instruments, and to do and accomplish all other acts or things necessary or appropriate to effect the purposes of such Service Transfer. Each Servicing Party agrees to cooperate with the Trustee and such Successor Servicer in effecting the termination of the responsibilities and rights of a Servicing Party to conduct servicing hereunder, including, without limitation, the transfer to such Successor Servicer of all authority of a Servicing Party to service the Receivables provided for under the Pooling and Servicing Agreements, including, without limitation, all authority over all Collections which shall on the date of transfer be held by a Servicing Party for deposit, or which have been deposited by a Servicing Party, in the Collection Account, or which shall thereafter be received with respect to the Receivables, and in assisting the Successor Servicer. Upon a Service Transfer, the relevant Servicing Party shall promptly (x) assemble all of its documents, instruments and other records (including credit files, licenses, rights, copies of all relevant computer programs and any necessary licenses for the use thereof, related material, computer tapes, disks, cassettes and data) that (i) evidence or will evidence or record Receivables sold and assigned to the Trust and (ii) are otherwise necessary or desirable to enable a Successor Servicer to effect the immediate Collection of such Receivables, with or without the participation of the applicable Seller and Servicing Party or the Servicer and (y) deliver or license the use of all of the foregoing documents, instruments and other records to the Successor Servicer at a place designated thereby. In recognition of such Servicing Party's need to have access to any such documents, instruments and other records which may be transferred to such Successor Servicer hereunder, whether as a result of its continuing responsibility as a servicer of accounts receivable which are not sold and assigned to the Trust or otherwise, such Successor Servicer shall provide to such Servicing Party reasonable access to such documents, instruments and other records transferred by such Servicing Party to it in connection with any activity arising in the ordinary course of such Servicing Party's business; PROVIDED that such Servicing Party shall not disrupt or otherwise interfere with the Successor Servicer's use of and access to such documents, instruments and other records. To the extent that compliance with this Section 6.1 shall require a Servicing Party to disclose to the Successor Servicer information of any kind which such Servicing Party reasonably deems to be confidential, the Successor Servicer shall be required to enter into such customary licensing and confidentiality agreements as such Servicing Party shall deem necessary to protect its interest. All costs and 20 expenses incurred by the defaulting Servicing Party, the Successor Servicer and the Trustee in connection with any Service Transfer shall be for the account of such defaulting Servicing Party. VI.2. TRUSTEE TO ACT; APPOINTMENT OF SUCCESSOR. (a) On and after (i) the receipt by a Servicing Party of a Termination Notice pursuant to Section 6.1 or (ii) the date on which such Servicing Party notifies the Trustee, the Company, each Agent and each Rating Agency in writing of its resignation pursuant to Section 5.3 (the "RESIGNATION NOTICE"), such Servicing Party shall continue to perform all servicing functions under the Pooling and Servicing Agreements until the earlier of (x) the date on which a Successor Servicer is appointed and (y) 60 days after the delivery of such Termination Notice or Resignation Notice, as the case may be. The Trustee shall, as promptly as reasonably possible after the giving of or receipt of a Termination Notice or Resignation Notice, as the case may be, appoint an Eligible Successor Servicer as successor servicer (the "SUCCESSOR SERVICER"); PROVIDED that in the event that any Sub-Servicer shall cease to be a Servicing Party for any reason, the Servicer shall be the Successor Servicer with respect to such terminated Sub- Servicer for so long as the Servicer shall continue to serve in its capacity as Servicer under the Pooling and Servicing Agreements. The Successor Servicer shall accept its appointment by a written assumption in a form acceptable to the Trustee. (a) In the event that a Successor Servicer has not been appointed or has not accepted its appointment at the time that the relevant Servicing Party ceases to act as such, the Trustee without further action shall be appointed Successor Servicer, PROVIDED that the Trustee shall only be responsible for the duties and liabilities of such Successor Servicer which are consistent with an orderly collection and liquidation of the Receivables and other Trust Assets in the manner contemplated for such liquidations in Section 7.2 of the Pooling Agreement and the application of such funds in accordance with the Pooling and Servicing Agreements. Consistent with the foregoing, in the event that the Trustee becomes Successor Servicer, the Successor Servicer shall take such collection actions as are commercially reasonable under the circumstances, including, without limitation, electing not to pursue legal collection efforts with respect to Receivables that it reasonably determines to be uncollectible. The Trustee, as Successor Servicer, shall have no liability to the Certificateholders, the Company or the predecessor Servicer in electing such actions. The Trustee may delegate any of its servicing obligations to an affiliate or agent in accordance with subsection 2.2(c). Notwithstanding the above, the Trustee shall, if the Trustee is legally unable so to act, petition a court of competent jurisdiction to appoint any Person qualifying as an Eligible Successor Servicer as the Successor Servicer hereunder. The Servicer shall immediately give notice to each Rating Agency of the receipt of any Termination Notice and the appointment of a Successor Servicer. (b) Upon its appointment, the Successor Servicer shall be the successor in all respects to the Servicing Party to which it is successor with respect to servicing functions under the Pooling and Servicing Agreements (with such changes as are agreed to between such Successor Servicer and the Trustee) and shall be subject to all the responsibilities, duties and liabilities relating thereto placed on such Servicing Party by the terms and provisions hereof, and all references in any Pooling and Servicing Agreement to the Servicer or the Sub-Servicer, as the case may be, shall be deemed to refer to the Successor Servicer. The Successor Servicer shall manage the servicing and administration of the Receivables, the collection of payments due under 21 the Receivables and the charging off of any Receivables as uncollectible, with reasonable care, using that degree of skill and attention that is the customary and usual standard of practice of prudent receivables servicers with respect to all comparable receivables serviced for itself or others. The Successor Servicer shall not be liable for, and the Servicer shall indemnify the Successor Servicer against costs incurred by the Successor Servicer as a result of, any acts or omissions of any Servicing Party or any events or occurrences occurring prior to the Successor Servicer's acceptance of its appointment as Successor Servicer. (c) The Company and the Trustee will review any bids obtained from Eligible Successor Servicers and the Company and the Trustee, or the Company (with the consent of the Trustee), may appoint any Eligible Successor Servicer submitting such a bid as a Successor Servicer for servicing compensation not in excess of the Servicing Fee. (d) All authority and power granted to the Successor Servicer under any Pooling and Servicing Agreement shall automatically cease and terminate on the Trust Termination Date, and shall pass to and be vested in the Company and, without limitation, the Company is hereby authorized and empowered to execute and deliver, on behalf of the Successor Servicer, as attorney-in-fact or otherwise, all documents and other instruments, and to do and accomplish all other acts or things necessary or appropriate to effect the purposes of such transfer of servicing rights from and after the Trust Termination Date. The Successor Servicer agrees to cooperate with the Company in effecting the termination of the responsibilities and rights of the Successor Servicer to conduct servicing on the Receivables. The Successor Servicer shall transfer all of its records relating to the Receivables to the Company in such form as the Company may reasonably request and shall transfer all other records, correspondence and documents to the Company in the manner and at such times as the Company shall reasonably request. To the extent that compliance with this Section 6.2 shall require the Successor Servicer to disclose to the Company information of any kind which the Successor Servicer deems to be confidential, the Company shall be required to enter into such customary licensing and confidentiality agreements as the Successor Servicer shall reasonably deem necessary to protect its interests. VI.3. WAIVER OF PAST DEFAULTS. Holders of Investor Certificates evidencing more than 50% of the Aggregate Invested Amount may waive any continuing default by any Servicing Party or the Company in the performance of their respective obligations hereunder and its consequences, except a default in the failure to make any required deposits or payments in respect of any Series of Certificates, which shall require a waiver by the holders of all of the affected Investor Certificates. Upon any such waiver of a past default, such default shall cease to exist, and any default arising therefrom shall be deemed to have been remedied for every purpose of the Pooling and Servicing Agreements. No such waiver shall extend to any subsequent or other default or impair any right consequent thereon except to the extent expressly so waived. Either the Company or the Servicer shall provide notice to each Rating Agency of any such waiver. 22 VII MISCELLANEOUS PROVISIONS VII.1. AMENDMENT. (a) This Agreement may only be amended, supplemented or otherwise modified from time to time if such amendment, supplement or modification is effected in accordance with the provisions of Section 10.1 of the Pooling Agreement. VII.2. TERMINATION. The respective obligations and responsibilities of the parties hereto shall terminate on the Trust Termination Date (unless such obligations or responsibilities are expressly stated to survive the termination of this Agreement). VII.3. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, AND THE RIGHTS, OBLIGATIONS AND REMEDIES OF EACH OF THE PARTIES HERETO SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS. VII.4. NOTICES. All notices, requests and demands to or upon the respective parties hereto to be effective shall be in writing (including by facsimile), and, unless otherwise expressly provided herein, shall be deemed to have been duly given or made when delivered by hand, or three days after being deposited in the mail, postage prepaid, or, in the case of facsimile notice, when received, addressed as set forth in Section 10.5 of the Pooling Agreement, or to such other address as may be hereafter notified by the respective parties hereto. VII.5. COUNTERPARTS. This Agreement may be executed in two or more counterparts (and by different parties on separate counterparts), each of which shall be an original, but all of which together shall constitute one and the same instrument. Delivery of an executed counterpart of a signature page to this Agreement by facsimile transmission shall be effective as delivery of a manually executed counterpart of this Agreement. VII.6. THIRD-PARTY BENEFICIARIES. This Agreement will inure to the benefit of and be binding upon the parties hereto and the Certificateholders and their respective successors and permitted assigns. Except as otherwise provided in this Article VII, no other person will have any right or obligation hereunder. VII.7. MERGER AND INTEGRATION. Except as specifically stated otherwise herein, this Agreement and the other Transaction Documents set forth the entire understanding of the parties relating to the subject matter hereof, and all prior understandings, written or oral, are superseded by this Agreement and the other Transaction Documents. This Agreement may not be modified, amended, waived, or supplemented except as provided herein. VII.8. HEADINGS. The headings herein are for purposes of reference only and shall not otherwise affect the meaning or interpretation of any provision hereof. 23 VII.9. NO SET-OFF. Except as expressly provided in this Agreement or any other Transaction Document, each Servicing Party agrees that it shall have no right of set-off or banker's lien against, and no right to otherwise deduct from, any funds held in the Collection Account for any amount owed to it by the Company, the Trust, the Trustee or any Certificateholder. VII.10. NO BANKRUPTCY PETITION. Each Servicing Party hereby covenants and agrees that, prior to the date which is one year and one day after the Trust Termination Date, it will not institute against, or join any other Person in instituting against, the Company any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings, or other proceedings under any federal or state bankruptcy or similar law. VII.11. CONSEQUENTIAL DAMAGES. In no event shall Chemical Bank, in its capacity as Successor Servicer, be liable for special, indirect or consequential loss or damage of any kind whatsoever (including, but not limited to, lost profits), even if it has been advised of the likelihood of such loss or damage and regardless of the form of action. 24 IN WITNESS WHEREOF, the Company, the Servicer, the Sub-Servicers and the Trustee have caused this Agreement to be duly executed by their respective officers as of the day and year first above written. RYKOFF-SEXTON FUNDING CORPORATION, as Company By:/s/ ---------------------------- Name: Title: RYKOFF-SEXTON, INC., as Servicer By:/s/ ---------------------------- Name: Title: JOHN SEXTON & CO., as a Sub-Servicer By:/s/ ---------------------------- Name: Title: CHEMICAL BANK, not in its individual capacity but solely as Trustee By:/s/ ---------------------------- Name: Title: EX-10.41-3 22 RECEIVABLES SALE AGREEMENT EXECUTION COPY RECEIVABLES SALE AGREEMENT This RECEIVABLES SALE AGREEMENT dated as of May 16, 1996 (this "AGREEMENT"), is among RYKOFF-SEXTON, INC., a Delaware corporation ("RS"), JOHN SEXTON & CO., a Delaware corporation ("SEXTON"; RS and Sexton, being collectively referred to herein as the "SELLERS" and individually as a "SELLER"), RYKOFF-SEXTON FUNDING CORPORATION, a Nevada corporation (the "COMPANY") and RS, in its capacity as servicer (the "SERVICER"). W I T N E S S E T H: WHEREAS, the Sellers intend to sell Receivables and Receivables Property (both as hereinafter defined) to the Company on the terms and subject to the conditions set forth in this Agreement; WHEREAS, the Company desires to purchase Receivables and Receivables Property from the Sellers on the terms and subject to the conditions set forth in this Agreement; WHEREAS, the Sellers and the Company desire the sale of Receivables and Receivables Property from the Sellers to the Company to be a true sale providing the Company with the full benefits of ownership of the Receivables; and WHEREAS, to obtain the necessary funds to purchase such Receivables and Receivables Property, the Company has entered into the Pooling Agreement (as hereinafter defined); NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements contained herein, the parties hereto agree as follows: ARTICLE I DEFINITIONS Section 1.01 CERTAIN DEFINED TERMS. As used in this Agreement, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined): "ADDITIONAL SELLER SUPPLEMENT" means an instrument substantially in the form of EXHIBIT B HERETO pursuant to which a Subsidiary of RS becomes a Seller party hereto. "AUTHORIZED OFFICERS" means those officers of the Sellers designated in SCHEDULE I hereto (or in such other Schedule as may be delivered by the Sellers to the other parties hereto from time to time) as duly authorized to execute and deliver this Agreement and any 2 instruments or documents in connection herewith on behalf of the Sellers and to take, from time to time, all other actions on behalf of the Sellers in connection herewith. "CLOSING DATE" means the date of the initial issuance of the Investor Certificates. "CODE" shall mean the Internal Revenue Code of 1986, and regulations promulgated thereunder or any successor statute and related regulations. "CONTRACT" means a contract between any Seller and any Person pursuant to or under which such Person shall be obligated to make payments to such Seller. "DISCOUNTED PERCENTAGE" has the meaning specified in SCHEDULE VIII hereto. "EARLY TERMINATION" shall have the meaning specified in Section 6.01. "EFFECTIVE DATE" means (i) with respect to each Seller on the date hereof, May , 1996 and (ii) with respect to each Subsidiary of RS added as a Seller pursuant to SECTION 9.13 hereof, the Seller Addition Date with respect to each such Subsidiary. "ERISA AFFILIATE" shall mean, with respect to any Person, any trade or business (whether or not incorporated) that is a member of a group of which such Person is a member and which is treated as a single employer under Section 414 of the Internal Revenue Code. "EXCLUDED RECEIVABLE" shall mean, subject to Section 10.21 of the Pooling Agreement, the indebtedness and payment obligations of any Person (i) to any Seller arising from a sale of merchandise or the provision of services by such Seller from its contract and design business, (ii) to the manufacturing division of any Seller at the manufacturing facilities of such Seller located in Los Angeles, California, Indianapolis, Indiana or Englewood, New Jersey arising from the sale of products manufactured by such division directly to unaffiliated third parties, (iii) to the Continental Foods operation of Sexton, located in Baltimore, Maryland, (iv) to the Lake Mills, Wisconsin operation or the San Francisco International Cheese Imports operation (located in San Francisco, California) of the San Francisco International Cheese Imports division of RS, and (v) to the Olfisco Specialty Products division of Sexton located in Minneapolis, Minnesota; PROVIDED that in the event any Excluded Receivable is included in a Daily Report, for the purposes of Section 2.1 of the Pooling Agreement and the definition of Collections, such receivable shall not be an Excluded Receivable. "LIEN" shall mean, with respect to any asset, (a) any mortgage, deed of trust, lien, pledge, encumbrance, charge or security interest in or on such asset, (b) the interest of a vendor or a lessor under any conditional sale agreement, capital lease or title retention agreement relating to such asset and (c) in the case of securities, any purchase option, call or other similar right of a third party with respect to such securities; PROVIDED, HOWEVER, that if a lien is imposed under Section 412(n) of the Internal Revenue Code or Section 302(f) of ERISA for a failure to make a required installment or other payment to a plan to which Section 412(n) of the Internal Revenue Code or Section 302(f) of ERISA applies, then such lien shall not be treated as a "Lien" from and after the time any Person who is obligated to make such payment pays to 3 such plan the amount of such lien determined under Section 412(n)(3) of the Internal Revenue Code or Section 302(f)(3) of ERISA, as the case may be, and provides to the Trustee and any Agent a written statement of the amount of such lien together with written evidence of payment of such amount, or such lien expires pursuant to Section 412(n)(4)(B) of the Internal Revenue Code or Section 302(f)(4)(B) of ERISA. "MATERIAL ADVERSE EFFECT" shall mean, with respect to any Seller, (a) a materially adverse effect on the business, operations, property or condition (financial or otherwise) of such Seller and its Subsidiaries taken as a whole, (b) a material impairment of the ability of such Seller to perform its obligations under the Transaction Documents, (c) a material impairment of the validity or enforceability of any of the Transaction Documents against such Seller, (d) a material impairment of the collectibility of the Receivables originated by such Seller taken as a whole or (e) a material impairment of the interests, rights or remedies of the Company under the Transaction Documents. "MULTIEMPLOYER PLAN" shall mean a "multiemployer plan" (within the meaning of Section 4001(a)(3) of ERISA) and to which such Person or any ERISA Affiliate of such Person (other than one considered an ERISA Affiliate only pursuant to subsection (m) or (o) of Section 414 of the Internal Revenue Code) is making or accruing an obligation to make contributions, or has within any of the preceding five years made or accrued an obligation to make contributions. "PAYMENT DATE" has the meaning specified in subsection 2.03(a). "PLAN" shall mean, with respect to any Person, any pension plan (other than a Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section 412 of the Internal Revenue Code which is maintained for employees of such Person or any ERISA Affiliate of such Person. "POOLING AGREEMENT" means the Pooling Agreement dated as of the date hereof, among the Company, the Servicer and the Trustee on behalf of the Certificateholders, as such agreement may be amended, supplemented, waived, or otherwise modified from time to time, including without limitation the Series 1996-1 Supplement dated as of the date hereof among the Company, the Servicer and the Trustee. "POTENTIAL PURCHASE TERMINATION EVENT" means any condition or act specified in Section 6.01 that, with the giving of notice or the lapse of time or both, would become a Purchase Termination Event. "PURCHASED RECEIVABLE" means, at any time, any Receivable sold to the Company by any Seller pursuant to, and in accordance with the terms of, this Agreement and not theretofore resold to such Seller pursuant to subsection 2.01(b) or SECTION 2.06. "PURCHASED RECEIVABLES PERCENTAGE" means, with respect to any Seller as to which RS has submitted a Seller Termination Request, the percentage equivalent of a fraction, the numerator of which is an amount equal to the aggregate outstanding Principal Amount of Purchased Receivables sold by such Seller as of the applicable Seller Termination Request Date, 4 and the denominator of which is an amount equal to the aggregate outstanding Principal Amount of all Purchased Receivables as of such date. "PURCHASE PRICE" has the meaning specified in SECTION 2.02. "PURCHASE TERMINATION DATE" means, with respect to any Seller, the date on which the Company's obligation to purchase Receivables from such Seller shall terminate, which shall be the date on which an Early Termination occurs with respect to such Seller. "PURCHASE TERMINATION EVENT" has the meaning specified in SECTION 6.01. "RECEIVABLE" shall mean the indebtedness and payment obligations of any Person to a Seller (including, without limitation, obligations constituting an account or general intangible or evidenced by a note, instrument, contract, security agreement, chattel paper or other evidence of indebtedness or security) arising from a sale of merchandise or the provision of services by such Seller, including, without limitation, any right to payment for goods sold or for services rendered, and including the right to payment of any interest, sales taxes, finance charges, returned check or late charges and other obligations of such Person with respect thereto; PROVIDED that, except as otherwise expressly provided, for all purposes hereunder "RECEIVABLES" shall not include Excluded Receivables. "RECEIVABLES POOL" means at any time all then outstanding Receivables and Receivables Property. "RELATED PROPERTY" shall mean, with respect to each Receivable: (a) all of the applicable Seller's interest in the goods (including returned goods), if any, relating to the sale which gave rise to such Receivable; (b) all other security interests or Liens, and the applicable Seller's interest in the property subject thereto from time to time purporting to secure payment of such Receivable, together with all financing statements signed by an Obligor describing any collateral securing such Receivable; and (c) all guarantees, insurance, letters of credit and other agreements or arrangements of whatever character from time to time supporting or securing payment of such Receivable; in the case of clauses (b) and (c), whether pursuant to the contract related to such Receivable or otherwise or including without limitation, pursuant to any obligations evidenced by a note, instrument, contract, security agreement, chattel paper or other evidence of indebtedness or security and the proceeds thereof. "RECEIVABLES PROPERTY" has the meaning specified in Section 2.01. 5 "RELEVANT UCC STATE" means each jurisdiction in which the filing of a UCC financing statement is necessary or desirable to perfect the Company's interest in the Receivables. "REPORTABLE EVENT" shall mean any reportable event as defined in Section 4043(b) of ERISA or the regulations issued thereunder with respect to a Plan (other than a Plan maintained by an ERISA Affiliate which is considered an ERISA Affiliate only pursuant to subsection (m) or (o) of Section 414 of the Internal Revenue Code). "RS PERSONS" means each Seller and each of its Affiliates other than the Company. "SEC" means the United States Securities and Exchange Commission. "SELLER ADDITION DATE" has the meaning specified in SECTION 3.02. "SELLER ADJUSTMENT PAYMENT" has the meaning specified in SECTION 2.05. "SELLER REPURCHASE PAYMENT" has the meaning specified in SECTION 2.06. "SELLER TERMINATION REQUEST" has the meaning specified in subsection 9.14(b). "SELLER TERMINATION REQUEST DATE" has the meaning specified in subsection 9.14(b). "SUBORDINATED NOTE" has the meaning specified in SECTION 8.01. "WITHDRAWAL LIABILITIES" shall mean liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA. All capitalized terms used herein and not otherwise defined have the meanings assigned such terms in Section 1.1 of the Pooling Agreement. Section 1.02. ACCOUNTING AND UCC TERMS. All accounting terms not specifically defined herein shall be construed in accordance with GAAP; and all terms used in Article 9 of the UCC that are used but not specifically defined herein are used herein as defined therein. 6 ARTICLE II PURCHASE AND SALE OF RECEIVABLES Section 2.01. PURCHASE AND SALE OF RECEIVABLES. (a) Each of the Sellers hereby sells, assigns transfers and conveys to the Company, without recourse (except to the limited extent provided herein), all its respective right, title and interest in, to and under (i) all Receivables now existing and hereafter arising from time to time, (ii) all payment and enforcement rights (but none of the obligations) with respect to such Receivables, (iii) all Related Property in respect of such Receivables and (iv) all Collections with respect to the foregoing clauses (i), (ii) and (iii) (the payment and enforcement rights, Related Property and Collections referred to in clauses (ii), (iii) and (iv) above are hereinafter collectively referred to as the "RECEIVABLES PROPERTY"). (b) On each applicable Effective Date and on the date of creation of each newly created Receivable (but only so long as no Early Termination with respect to the Seller which created such Receivable shall have occurred and be continuing), all of the applicable Seller's right, title and interest in, to and under (i) in the case of each such Effective Date, all then existing Receivables and all Receivables Property in respect of such Receivables and (ii) in the case of each such date of creation, all such newly created Receivables and all Receivables Property in respect of such Receivables shall be immediately and automatically sold, assigned, transferred and conveyed to the Company pursuant to paragraph (a) above without any further action by such Seller or any other Person. If any Seller shall not have received payment from the Company of the Purchase Price for any newly created Receivable and the related Receivables Property on the Payment Date therefor in accordance with the terms of subsection 2.03(b), such newly created Receivable and the Receivables Property with respect thereto shall, upon receipt of notice from the applicable Seller of such failure to receive payment, immediately and automatically be sold, assigned, transferred and reconveyed by the Company to such Seller without any further action by the Company or any other Person. (c) The parties to this Agreement intend that the transactions contemplated by subsections 2.01(a) and (b) hereby shall be, and shall be treated as, a purchase by the Company and a sale by the applicable Seller of the Purchased Receivables and the Receivables Property in respect thereof and not a lending transaction. All sales of Receivables and Receivables Property by any Seller hereunder shall be without recourse to, or representation or warranty of any kind (express or implied) by, any Seller, except as otherwise specifically provided herein. The foregoing sale, assignment, transfer and conveyance does not constitute and is not intended to result in a creation or assumption by the Company of any obligation of any Seller or any other Person in connection with the Receivables, the Receivables Property or any agreement or instrument relating thereto, including any obligation to any Obligor. If this Agreement does not constitute a valid sale, assignment, transfer and conveyance of all right, title and interest of each Seller in, to and under the Purchased Receivables and the Receivables Property in respect thereof despite the intent of the parties hereto, such Seller hereby grants a "security interest" (as defined in the UCC as in effect in the State of New York) in the Purchased Receivables, the Receivables Property in respect thereof and all proceeds thereof to the Company and the parties agree that this Agreement shall constitute a security agreement under the UCC in effect in New York. 7 (d) In connection with the foregoing conveyances, each Seller agrees to record and file, at its own expense, financing statements (and continuation statements with respect to such financing statements when applicable) with respect to the Receivables and Receivables Property now existing and hereafter acquired by the Company from the Sellers meeting the requirements of applicable state law in such manner and in such jurisdictions as are necessary to perfect the Company's purchases of ownership interests in the Receivables and Receivables Property from the Sellers, and to deliver evidence of such filings to the Company on or prior to the related Effective Date. (e) In connection with the foregoing conveyances, each Seller agrees at its own expense, as agent of the Company, (i) to indicate on the computer files containing a master database of Receivables that all Receivables included in such files and all Receivables Property have been sold to the Company in accordance with this Agreement and (ii) to deliver to the Company computer files, microfiche lists or typed or printed lists (the "RECEIVABLES LISTS") containing true and complete lists of all such Receivables, identified by Obligor and setting forth the Receivables balance for each Receivable as of the Cut-Off Date. Section 2.02. PURCHASE PRICE. The amount payable by the Company to a Seller (the "PURCHASE PRICE") for Receivables and Receivables Property on any Payment Date under this Agreement shall be equal to the product of (a) the aggregate outstanding Principal Amount of such Receivables as set forth in the applicable Daily Report TIMES (b) the Discounted Percentage with respect to such Seller. Section 2.03. PAYMENT OF PURCHASE PRICE. (a) Upon the fulfillment of the conditions set forth in Article III, the Purchase Price for Receivables and the Receivables Property shall be paid or provided for by the Company in the manner provided below on each day for which a Daily Report is delivered to the Company (each such day, a "PAYMENT DATE") in respect of a Reported Day (which Daily Report shall specify, by Seller, the Principal Amount of Receivables being sold on such Payment Date, the aggregate Purchase Price for such Receivables and the components of payment as provided in paragraph (b) below). Each Seller hereby appoints the Servicer as its agent to receive payment of the Purchase Price for Receivables and Receivables Property sold by it to the Company and hereby authorizes the Company to make all payments due to such Seller directly to, or as directed by, the Servicer. The Servicer hereby accepts and agrees to such appointment. (b) The Purchase Price for Receivables and Receivables Property shall be paid by the Company on each Payment Date as follows: (i) by netting the amount of any Seller Adjustment Payments or Seller Repurchase Payments pursuant to SECTION 2.05 or 2.06 against such Purchase Price; (ii) to the extent available for such purpose, in cash from Collections released to the Company pursuant to the Pooling Agreement; 8 (iii) to the extent available for such purpose, in cash from the net proceeds of a transfer of interests in Purchased Receivables by the Company to other Persons; (iv) at the option of the Company, by means of an addition to the principal amount of the Subordinated Note in an aggregate amount equal to the remaining portion of the Purchase Price; PROVIDED, HOWEVER, that with respect to any Seller, the outstanding principal amount of such Seller's interest in the Subordinated Note shall not at any time exceed 25% of the aggregate Purchase Price received by such Seller from the Company with respect to the aggregate outstanding Principal Amount of the Purchased Receivables of such Seller at such time; and PROVIDED FURTHER that the Company may pay the Purchase Price by means of additions to the principal amount of the Subordinated Note only if, at the time of such payment and after giving effect thereto, the fair market value of the Company's assets, including, without limitation, any beneficial interests in or indebtedness of a trust and all Receivables and Receivables Property the Company owns, is greater than the amount of its liabilities including its liabilities on the Subordinated Note and all interest and other fees due and payable under the Pooling Agreement and the other Transaction Documents. Any such addition to the principal amount of the Subordinated Note shall be allocated among the Sellers (PRO RATA according to the Principal Amount of Receivables sold by each Seller) by the Servicer in accordance with the provisions of this subsection 2.03(b)(iv) and SECTION 8.01. The Servicer may evidence such additional principal amounts by recording the date and amount thereof on the grid attached to such Subordinated Note; PROVIDED that the failure to make any such recordation or any error in such grid shall not adversely affect any Seller's rights; and (v) in cash from the proceeds of capital contributed by RS to the Company, if any, in respect of its equity interest in the Company. (c) The Servicer shall be responsible, in its sole discretion but in accordance with the preceding subsection 2.03(b), for allocating among the Sellers the payment of the Purchase Price for Receivables and any amounts netted therefrom pursuant to subsection 2.03(b)(i), which allocation shall be, subject to the first proviso contained in subsection 2.03(b)(iv), either in the form of cash received from the Company or as an addition to the principal amount of a Seller's interest in the Subordinated Note. The Company shall be entitled to pay all amounts in respect of the Purchase Price of Receivables and Receivables Property to an account of the Servicer for allocation by the Servicer to the Sellers, and the Sellers hereby appoint the Servicer as their agent for purposes of receiving such payments and making such allocations. All payments under this Agreement shall be made not later than 3:00 p.m (New York City time) on the date specified therefor in Dollars in same day funds or by check, as the Servicer shall elect and to the bank account designated in writing by the Servicer to the Company. (d) Whenever any payment to be made under this Agreement shall be stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day. Amounts not paid when due in accordance with the terms of this Agreement shall bear interest at a rate equal at all times to the ABR PLUS 2%, payable on demand. 9 Section 2.04. NO REPURCHASE. Except to the extent expressly set forth herein, no Seller shall have any right or obligation under this Agreement, by implication or otherwise, to repurchase from the Company any Purchased Receivables or Receivables Property or to rescind or otherwise retroactively affect any purchase of any Purchased Receivables or Receivables Property after the Payment Date relating thereto. Section 2.05. REBATES, ADJUSTMENTS, RETURNS AND REDUCTIONS; MODIFICATIONS. From time to time, a Seller may make Dilution Adjustments to Receivables in accordance with this subsection 2.05(a) and subsection 5.03(c). The Sellers, jointly and severally, agree to pay to the Company, on the first Business Day immediately succeeding the date of the grant of any Dilution Adjustment (regardless of which Seller shall have granted such Dilution Adjustment), the amount of any such Dilution Adjustment (a "SELLER ADJUSTMENT PAYMENT"); PROVIDED that, prior to the occurrence of any Early Termination with respect to all Sellers, any such Seller Adjustment Payment due to the Company on any Payment Date shall, on such Payment Date, be netted against the Purchase Price of newly created Receivables in accordance with subsection 2.03(b)(i) to the extent of such Purchase Price and the remaining amount of such Seller Adjustment Payment due to the Company after such netting, if any, shall be paid to the Company on such date in cash. The amount of any Dilution Adjustment made on any Reported Day shall be set forth on the Daily Report prepared with respect to such Reported Day. Section 2.06. LIMITED REPURCHASE OBLIGATION. In the event that (i) any representation or warranty contained in Section 4.02 in respect of any Receivable transferred to the Company is not true and correct in any material respect on the applicable Payment Date, or (ii) there is a breach of any covenant contained in subsection 5.01(d), (g) or (h) or Section 5.03 with respect to any Receivable and such breach has a material adverse effect on the Company's interest in such Receivable or (iii) the Company's interest in any Receivable is not a first priority perfected ownership or security interest at any time as a result of any action taken by, or any failure to take action by, any Seller, then the Sellers, jointly and severally, agree to pay to the Company an amount equal to the Purchase Price of such Receivable (whether the Company paid such Purchase Price in cash or otherwise) less Collections received by the Company in respect of such Receivable, regardless of which Seller shall have been responsible for such incorrectness or breach, such payment to occur no later than the Payment Date occurring on the 30th day (or, if such 30th day is not a Payment Date, on the Payment Date immediately succeeding such 30th day) after the day such breach or incorrectness becomes known (or should have become known with due diligence) to any Seller (unless such breach or incorrectness shall have been cured on or before such day); PROVIDED that, prior to any Early Termination with respect to all Sellers, any such payment due and owing to the Company on such Payment Date shall be netted against the Purchase Price of newly created Receivables in accordance with subsection 2.03(b)(i) to the extent of such Purchase Price and the remaining amount of such payment due to the Company after such netting, if any, shall be paid to the Company in cash to the extent still unpaid on such Payment Date. Any payment by any Seller pursuant to this Section 2.06 is referred to as a "SELLER REPURCHASE PAYMENT". The obligation to reacquire any Receivable shall, upon satisfaction thereof, constitute the sole remedy respecting the event giving rise to such obligation available to the Company. Simultaneously with any Seller Repurchase Payment with respect to any Receivable, such Receivable and the Receivables Property with respect thereto shall immediately 10 and automatically be sold, assigned, transferred and conveyed by the Company to the applicable Seller without any further action by the Company or any other Person. Section 2.07. OBLIGATIONS UNAFFECTED. The obligations of the Sellers to the Company under this Agreement shall not be affected by reason of any invalidity, illegality or irregularity of any Receivable or any sale of a Receivable. Section 2.08. CERTAIN CHARGES. Each Seller and the Company agree that late charge revenue, reversals of discounts, other fees and charges and other similar items, whenever created, accrued in respect of Purchased Receivables shall be the property of the Company notwithstanding the occurrence of an Early Termination and all Collections with respect thereto shall continue to be allocated and treated as Collections in respect of Purchased Receivables. Section 2.09. CERTAIN ALLOCATIONS. The Sellers hereby agree that, following the occurrence of an Early Termination, all Collections and other proceeds received in respect of Receivables generated by the Sellers shall be applied, FIRST, to pay the outstanding Principal Amount of Purchased Receivables (as of the date of such Early Termination) of the Obligor to whom such Collections are attributable until such Purchased Receivables are paid in full and, SECOND, to the related Seller to pay Receivables of such Obligor not sold to the Company; PROVIDED, HOWEVER, that notwithstanding the foregoing, if an Obligor indicates that a particular Collection be applied to a specific Receivable of such Obligor, then such Collection shall be applied to pay such Receivable. Section 2.10. FURTHER ASSURANCES. From time to time at the request of a Seller, the Company shall deliver to such Seller such documents, assignments, releases and instruments of termination as such Seller may reasonably request to evidence the reconveyance by the Company to such Seller of a Receivable pursuant to the terms of Section 2.01(b) or 2.06, PROVIDED that the Company shall have been paid all amounts due thereunder; and the Company and the Servicer shall take such action as such Seller may reasonably request, at the expense of such Seller, to assure that any such Receivable, the Related Property and Collections with respect thereto do not remain commingled with other Collections hereunder. Section 2.11. PURCHASE OF SELLERS' INTEREST IN RECEIVABLES AND RECEIVABLES PROPERTY. (a) In the event of any breach of any of the representations and warranties set forth in subsection 4.02(a), (b), (c), (e), (f) or (g), as of the date made, which breach has a material adverse effect on the interests of the Company in the Receivables or the Receivables Property, then the Company, by notice then given in writing to the Sellers, may direct the Sellers to purchase all Receivables and Receivables Property and the Sellers, jointly and severally, shall be obligated to make such purchase on the next Distribution Date occurring at least five Business Days after receipt of such notice on the terms and conditions set forth in subsection 2.11(b) below; PROVIDED, HOWEVER, that no such purchase shall be required to made if, by such Distribution Date, the representations and warranties contained in subsections 4.02(a), (b), (c), (e), (f) or (g) shall be satisfied in all material respects, and any material adverse effect on the Company caused thereby has been cured. 11 (b) The Sellers, jointly and severally, shall, as the purchase price for the Receivables and Receivables Property to be purchased pursuant to subsection 2.11(a) above, pay to the Company, on the Business Day preceding such Distribution Date, an amount equal to the purchase price of the Purchased Receivables, less Collections received by the Company in respect of such Purchased Receivables, as of such Distribution Date. Upon payment of such amount, in immediately available funds, to the Company, the Company's rights with respect to the Purchased Receivables shall terminate and such interest therein will be transferred to the Sellers and the Company shall have no further rights with respect thereto. If the Company gives notice directing the Sellers to purchase the Purchased Receivables as provided above, the obligation of the Sellers to purchase the Purchased Receivables pursuant to this Section 2.11 shall upon satisfaction thereof constitute the sole remedy respecting an event of the type specified in the first sentence of this Section 2.11 available to the Company. ARTICLE III CONDITIONS TO PURCHASES Section 3.01. CONDITIONS PRECEDENT TO COMPANY'S INITIAL PURCHASE. The obligation of the Company to purchase Receivables and Receivables Property hereunder on the Effective Date from the Sellers is subject to the conditions precedent that the Company shall have received on or before the date of such purchase the following, each (unless otherwise indicated) dated the day of such sale and in form and substance satisfactory to the Company: (a) RESOLUTIONS. Copies of the resolutions of the Board of Directors of each Seller approving this Agreement and the other Transaction Documents to be delivered by such Seller and the transactions contemplated thereby, certified by the Secretary or Assistant Secretary of such Seller; (b) SECRETARY'S CERTIFICATE. A certificate of the Secretary or Assistant Secretary of each Seller certifying the names and true signatures of the officers authorized on behalf of such Seller to sign this Agreement and the other Transaction Documents to be delivered by it (on which certificates the Company may conclusively rely until such time as the Company shall receive from any such Seller a revised certificate with respect to such Seller meeting the requirements of this subsection (b)); (c) CORPORATE DOCUMENTS. The Articles of Incorporation of each Seller, duly certified by the secretary of state of such Seller's jurisdiction of incorporation, as of a recent date acceptable to the Company, together with a copy of the By-laws of such Seller, duly certified by the Secretary or an Assistant Secretary of such Seller; (d) UCC CERTIFICATE; UCC FINANCING STATEMENTS. (i) A UCC Certificate duly executed by a Responsible Officer of the applicable Seller and dated such date of purchase and (ii) executed copies of such proper financing statements, filed prior to the Closing Date, naming the applicable Seller as the seller and the Company as the purchaser of the Receivables and the Receivables Property, in proper form for filing in each jurisdiction in which the Company (or any of its assignees) deems it necessary or desirable to perfect the 12 Company's ownership interest in all Receivables and Receivables Property under the UCC or any comparable law of such jurisdiction; (e) UCC SEARCHES. A written search report, prepared by Lexis Document Services, listing all effective financing statements that name the applicable Seller as debtor or assignor and that are filed in the jurisdictions in which filings were made pursuant to subsection (d) above and in any other jurisdictions that the Company determines are necessary or appropriate, together with copies of such financing statements (none of which, except for those described in subsection (d) above, shall cover any Receivables or Receivables Property), and tax and judgment lien searches by Lexis Document Services showing no such liens that are not permitted by the Transaction Documents; (f) OTHER TRANSACTION DOCUMENTS. Original copies, executed by each of the parties thereto, of each of the other Transaction Documents to be executed and delivered in connection herewith; (g) BACK-UP SERVICING ARRANGEMENTS. Evidence that each Seller maintains disaster recovery systems and back-up computer and other information management systems that, in the Company's reasonable judgment, are sufficient to protect such Seller's business against material interruption or loss or destruction of its primary computer and information management systems. (h) CONSENTS. Copies of all consents, if any (including without limitation consents under loan agreements and indentures to which any Seller or its Affiliates are parties), necessary to consummate the transactions contemplated by the Transaction Documents; (i) INSURANCE. Evidence that each Seller's insurable properties are adequately insured by financially sound and reputable insurance companies. (j) LEGAL OPINIONS. (i) One or more legal opinions from counsel to the Sellers and counsel to the Company to the effect that: (A) the sales of Receivables by each Seller to the Company pursuant to this Agreement are true sales and that such Receivables would not be property of such Seller's bankruptcy estate; and (B) a court should not order the substantive consolidation of the assets and liabilities of the Company with those of any Seller. (ii) One or more legal opinions from counsel to the Sellers and counsel to the Company: (A) to the effect that each Seller and the Company, as applicable, has all approvals, judicial, regulatory, legal or otherwise, needed to execute, deliver 13 and perform each Transaction Document to which it is a party and that no conflict or default will occur as a result of the execution, delivery and performance thereof; (B) to the effect that the Company has a perfected, first priority, security interest in the Receivables and Receivables Property; and (C) addressing other customary matters. (k) LOCK-BOX AGREEMENT. The Servicer shall have delivered a Lockbox Agreement signed by it, the Company and the Trustee to each Lockbox Processor, such Lockbox Agreement to be in substantially the form of Exhibit B to the Pooling Agreement. (l) LIST OF OBLIGORS. Each Seller shall have delivered to the Company the Receivables List showing, as of the Cut-Off Date, the Obligors whose Receivables are to be transferred to the Company on the Effective Date and the balance of the Receivables with respect to each such Obligor as of such prior date. Section 3.02. CONDITIONS PRECEDENT TO THE ADDITION OF A SELLER. No Subsidiary of RS approved by the Company as an additional Seller pursuant to SECTION 9.13 shall be added as a Seller hereunder unless the conditions set forth below shall have been satisfied on or before the date designated for the addition of such Seller (the "SELLER ADDITION DATE"): (a) ADDITIONAL SELLER SUPPLEMENT; UCC CERTIFICATE. The Company shall have received (with a copy for the Trustee and each Agent) (i) an Additional Seller Supplement duly executed and delivered by such Seller and (ii) a UCC Certificate duly executed by a Responsible Officer of such Seller and dated the related Seller Addition Date. (b) RESOLUTIONS. The Company shall have received copies of duly adopted resolutions of the Board of Directors of such Seller as in effect on the related Seller Addition Date and in form and substance reasonably satisfactory to the Company, authorizing this Agreement, the documents to be delivered by such Seller hereunder and the transactions contemplated hereby, certified by the Secretary or Assistant Secretary of such Seller. (c) SECRETARY'S CERTIFICATE. The Company shall have received duly executed certificates of the Secretary or an Assistant Secretary of such Seller, dated the related Seller Addition Date and in form and substance reasonably satisfactory to the Company, certifying the names and true signatures of the officers authorized on behalf of such Seller to sign the Additional Seller Supplement or any instruments or documents in connection with this Agreement. (d) CORPORATE DOCUMENTS. The Company shall have received the Articles of Incorporation of such Seller, duly certified by the secretary of state of such Seller's jurisdiction of incorporation, as of a recent date acceptable to the Company, together with 14 a copy of the By-laws of such Seller, duly certified by the Secretary or an Assistant Secretary of such Seller; (e) LOCKBOX AGREEMENT. A Lockbox Account with respect to Receivables to be sold by such Seller shall have been established in the name of the Company, and the Servicer shall have delivered with respect to such Lockbox Account a Lockbox Agreement signed by it, the Company and the Trustee to the applicable Lockbox Processor, such Lockbox Agreement to be in substantially the form of Exhibit B to the Pooling Agreement. (f) UCC SEARCHES. The Company shall have received reports of UCC and other searches of such Seller with respect to the Receivables and the Receivables Property reflecting the absence of Liens thereon, except Liens created in connection with a transfer by the Company of such Purchased Receivables and except for Liens as to which the Company has received UCC termination statements to be filed on or prior to the related Seller Addition Date. (g) UCC FINANCING STATEMENTS. Such Seller shall have filed and recorded, at its own expense, UCC-1 financing statements naming the Company as purchaser and such Seller as seller with respect to the Receivables and the Receivables Property (excluding returned merchandise) in such manner and in such jurisdictions as are necessary or desirable to perfect the Company's ownership interest therein under the UCC and delivered evidence of such filings to the Company; and all other action necessary or desirable, in the opinion of the Company, to perfect the Company's ownership of the Receivables shall have been duly taken. (h) LIST OF OBLIGORS. Such Seller shall have delivered to the Company a microfiche, a typed or printed list or other tangible evidence reasonably acceptable to the Company showing as of a date acceptable to the Company prior to the related Seller Addition Date the Obligors whose Receivables are to be transferred to the Company and the balance of the Receivables with respect to each such Obligor as of such date. (i) OPINIONS. The Company shall have received (i) legal opinions on behalf of such Seller as to general corporate matters of such Seller (including, without limitation, an opinion as to the perfection and priority of the Company's interest in the Purchased Receivables) and (ii) confirmation (A) as to the "true sale" nature of the sale of Receivables of such Seller hereunder and (B) as to substantive consolidation issues between such Seller and RS on the one hand and the Company on the other hand, all in form and substance reasonably satisfactory to the Company. (j) INSURANCE. The Company shall have received evidence that such Seller's insurable properties are insured by financially sound and reputable insurance companies. (k) BACK-UP SERVICING ARRANGEMENTS. The Company shall have received evidence that such Seller maintains disaster recovery systems and back-up computer and other information management systems that, in the Company's reasonable judgment, are 15 sufficient to protect such Seller's business against material interruption or loss or destruction of its primary computer and information management systems. (l) CONSENTS. The Company shall have received copies of all consents, if any (including without limitation consents under loan agreements and indentures to which any Seller or its Affiliates are parties), necessary to consummate the transactions contemplated by the Transaction Documents; (m) PARTY TO SERVICING AGREEMENT. Such additional Seller shall have become a party to the Servicing Agreement in its capacity as a Sub-Servicer thereunder. Section 3.03. CONDITIONS PRECEDENT TO ALL THE COMPANY'S PURCHASES OF RECEIVABLES. The obligation of the Company to pay for any Receivable and the Receivables Property with respect thereto on each Payment Date (including the Effective Date) shall be subject to the further conditions precedent that, on and as of such Payment Date: (a) the following statements shall be true (and the acceptance by the relevant Seller of the Purchase Price for such Receivable on such Payment Date shall constitute a representation and warranty by such Seller that on such Payment Date such statements are true): (i) the representation and warranties of such Seller contained in Section 4.02 shall be true and correct in all material respects on and as of such Payment Date as though made on and as of such date except to the extent any such representation or warranty is expressly made only as of another date (in which case it shall be true and correct in all material respects on and as of such other date); (ii) after giving effect to such purchase, no (A) Early Termination with respect to such Seller or (B) Potential Purchase Termination Event with respect to a Purchase Termination Event set forth in clause (g)(ii) of Section 6.01 shall have occurred and be continuing; and (iii) there has been no material adverse change since the date of this Agreement in the collectibility of the Receivables taken as a whole (other than due to a change in the creditworthiness of the Obligors); (b) the Company, the Trustee and the Agents shall be satisfied that such Seller's systems, procedures and record keeping relating to the Purchased Receivables remain in all material respects sufficient and satisfactory in order to permit the purchase and administration of the Purchased Receivables in accordance with the terms and intent of this Agreement; (c) the Company shall have received payment in full of all amounts for which payment is due from such Seller pursuant to Sections 2.05, 2.06 or 7.01; 16 (d) the Company shall have received such other approvals, opinions or documents as the Company may reasonably request; and (e) such Seller shall have complied with all of its covenants in all material respects and satisfied all of its obligations in all material respects under this Agreement required to be complied with or satisfied as of such date; PROVIDED, HOWEVER, that the failure of such Seller to satisfy any of the foregoing conditions shall not prevent such Seller from subsequently selling Receivables upon satisfaction of all such conditions or exercising its rights under subsection 2.01(b). Section 3.04. CONDITION PRECEDENT TO EACH SELLER'S OBLIGATIONS. The obligation of a Seller to sell any Receivable generated by it on any date (including on the Effective Date) shall be subject to the condition precedent that, on the related Payment Date, the following statement shall be true (and the payment by the Company of the Purchase Price for such Receivable on such date shall constitute a representation and warranty by the Company that on such Payment Date such statement is true): no Early Amortization Event or Potential Early Amortization Event of a type set forth in Section 7.1 of the Pooling Agreement shall have occurred and be continuing. ARTICLE IV REPRESENTATIONS AND WARRANTIES Section 4.01. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and warrants as to itself for the benefit of the Sellers as follows: (a) It (i) is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation, and is duly qualified as a foreign corporation and is in good standing in each jurisdiction in which the failure to so qualify would have a Material Adverse Effect, (ii) has the requisite corporate power and authority to effect the transactions contemplated hereby, and (iii) has all requisite corporate power and authority and the legal right to own, pledge, mortgage and operate its properties, and to conduct its business as now or currently proposed to be conducted. (b) The execution, delivery and performance by it of this Agreement and all instruments and documents to be delivered hereunder by it, and the transactions contemplated hereby and thereby, (i) are within its corporate powers, have been duly authorized by all necessary corporate action, including the consent of shareholders where required, and do not (A) contravene its charter or by-laws, (B) violate any law or regulation or any order or decree of any court or governmental instrumentality, (C) conflict with or result in the breach of, or constitute a default under, any indenture, mortgage or deed of trust or any material lease, agreement or other instrument binding on or affecting it or any of its respective subsidiaries or any of its properties or (D) result in or require the creation or imposition of any Lien EXCEPT as created or imposed hereunder or under the Pooling Agreement, and no transaction contemplated hereby requires compliance on its part with any bulk sales act or similar law, and (ii) do not require the 17 consent of, authorization by or approval of or notice to or filing or registration with, any governmental body, agency, authority, regulatory body or any other Person other than those which have been obtained or made EXCEPT for the filing of the Financing Statements referred to in ARTICLE III hereof, which filings the Sellers hereby represent shall have been duly made prior to or substantially contemporaneously with any purchases of Receivables and other Receivables Property and shall at all times be in full force and effect (except as they may be terminated by the Company). This Agreement has been duly executed and delivered by the Company and constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms except (A) as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect affecting the enforcement of creditors' rights in general, and (B) as such enforceability may be limited by general principles of equity (whether considered in a suit at law or in equity). Section 4.02. REPRESENTATIONS AND WARRANTIES OF THE SELLERS. Each Seller hereby represents and warrants for the benefit of the Company and its assigns (including the Agents) on the Closing Date and on each Payment Date as follows: (a) ORGANIZATION AND GOOD STANDING. Such Seller is a corporation duly organized and validly existing as a corporation in good standing under the laws of the state of its incorporation and has full corporate power, authority and legal right to own its properties and conduct its business as such properties are presently owned and such business is presently conducted, and to execute, deliver and perform its obligations under this Agreement. (b) DUE QUALIFICATION. Such Seller is duly qualified to do business as a foreign corporation in good standing, and has obtained all necessary licenses and approvals, in all jurisdictions in which the ownership or lease of property or the conduct of its business requires such qualification, licenses or approvals and where the failure to preserve and maintain such qualification, licenses or approvals is reasonably likely to have a Material Adverse Effect. (c) DUE AUTHORIZATION. The execution and delivery of this Agreement and the other Transaction Documents to which it is a party and the consummation of the transactions provided for therein have been duly authorized by such Seller by all necessary corporate action on its part. (d) NO DEFAULT. Such Seller is not in default under or with respect to any of its Contractual Obligations in any respect which would be reasonably likely to have a Material Adverse Effect with respect to such Seller. No (i) Early Termination or (ii) Potential Purchase Termination Event with respect to a Purchase Termination Event set forth in clause (g)(ii) of Section 6.01, in each case with respect to such Seller, has occurred and is continuing. (e) VALID SALE; BINDING OBLIGATIONS. Each transfer of Receivables and Receivables Property made pursuant to this Agreement shall constitute a valid sale, 18 transfer and assignment of the Receivables and the Receivables Property to the Company which is perfected and of first priority under applicable law, enforceable against creditors of, and purchasers from, such Seller; and this Agreement constitutes, and each other Transaction Document to be signed by such Seller when duly executed and delivered will constitute, an enforceable obligation of such Seller in accordance with its terms, except (A) as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect affecting the enforcement of creditors' rights in general, and (B) as such enforceability may be limited by general principles of equity (whether considered in a suit at law or in equity). (f) NO VIOLATION. The execution, delivery and performance of, and the consummation of the transactions contemplated by, this Agreement and the other Transaction Documents and the fulfillment of the terms hereof and thereof will not (i) conflict with, result in any breach of any of the terms and provisions of, or constitute (with or without notice or lapse of time or both) a default under, the Certificate of Incorporation or By-laws of such Seller or any contract, indenture, loan agreement, mortgage, deed of trust, or other agreement or instrument to which such Seller is a party or by which such Seller or any of its properties is bound, (ii) result in the creation or imposition of any Lien upon any of its properties pursuant to the terms of any such contract, indenture, loan agreement, mortgage, deed of trust, or other agreement or instrument, other than this Agreement and the other Transaction Documents, or (iii) violate any law or any order, rule, or regulation of any court or of any federal, state, local or other regulatory body, administrative agency, or other governmental instrumentality of the United States of America having jurisdiction over such Seller or any of its properties. (g) NO PROCEEDINGS. There are no proceedings or investigations pending or, to the knowledge of such Seller, threatened against such Seller before any court, regulatory body, administrative agency, or other tribunal or governmental instrumentality (i) asserting the invalidity of this Agreement or any other Transaction Document, (ii) seeking to prevent the consummation of any of the transactions contemplated by this Agreement or any other Transaction Document, (iii) seeking any determination or ruling that, in the reasonable judgment of such Seller, would materially and adversely affect the performance by such Seller of its obligations under this Agreement or any other Transaction Document or (iv) seeking any determination or ruling that would materially and adversely affect the validity or enforceability of this Agreement or any other Transaction Document. (h) BULK SALES ACT. No transaction contemplated by this Agreement or any other Transaction Document with respect to such Seller requires compliance with, or will be subject to avoidance under, any bulk sales act or similar law. (i) GOVERNMENT APPROVALS. No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body in the United States of America is required for the due execution, delivery and performance by such Seller of this Agreement or any other Transaction Document to which it is a party EXCEPT for the filing of the UCC financing statements referred to in ARTICLE III, all of 19 which, at the time required in ARTICLE III, shall have been duly made and shall be in full force and effect. (j) BONA FIDE RECEIVABLES. Each Receivable of such Seller is or will be an account receivable arising out of such Seller's performance in accordance with the terms of the Contract, if any, giving rise to such Receivable. Such Seller has no knowledge of any fact which should have led it to expect at the time of its classification of any Receivable as an Eligible Receivable hereunder that such Eligible Receivable would not be paid in full when due. Each Receivable sold by it hereunder and designated on a Daily Report to be an Eligible Receivable will be, at its respective Payment Date, an Eligible Receivable. The aggregate outstanding Principal Amount of Receivables so sold by it on any Payment Date and so designated as Eligible Receivables is correctly set forth on the Daily Report with respect to such Payment Date. (k) OFFICE. The principal place of business and the chief executive office of such Seller are as indicated for such Seller on SCHEDULE IX hereto, and the offices where such Seller keeps its records concerning the Receivables and related Contracts and all purchase orders and other agreements related to the Receivables are as indicated for such Seller on SCHEDULE II hereto (or at such other locations, notified to the Company and the Agents in accordance with SECTION 5.01(i), in jurisdictions where all action required by SECTION 5.01(p) has been taken and completed). (l) MARGIN REGULATIONS. No use of any funds obtained by such Seller under this Agreement or the other Transaction Documents will conflict with or contravene any of Regulations G, T, U and X promulgated by the Board of Governors of the Federal Reserve System from time to time. (m) QUALITY OF TITLE. Each Receivable and all Receivables Property which is to be transferred to the Company by such Seller shall be transferred by such Seller free and clear of any Lien (other than any Lien arising under any other Transaction Document or arising solely as the result of any action taken by the Company hereunder or the Agents); immediately prior to such transfer such Seller shall have made all filings under applicable law in each relevant jurisdiction in order to protect and perfect the Company's ownership interest in all Receivables and Receivables Property against all creditors of, and purchasers from, such Seller; and the Company shall have acquired and shall continue to have maintained a valid and perfected first priority ownership interest in each Receivable and the Receivables Property free and clear of any Lien (other than any Lien arising solely as the result of any action taken by the Company hereunder or the Trustee); and no effective financing statement or other instrument similar in effect covering any Receivable, any interest therein or any Receivables Property with respect thereto is on file in any recording office except such as may be filed (i) in favor of such Seller in accordance with the Contracts, (ii) in favor of the Company pursuant to this Agreement, and (iii) in favor of the Trustee or the Agents. (n) ACCURACY OF INFORMATION. All factual written information heretofore or contemporaneously furnished by such Seller or its Affiliates (other than the Company) to 20 the Company or the Agents for purposes of or in connection with any Transaction Document or any transaction contemplated hereby or thereby is, and all other such factual, written information hereafter furnished (if prepared by such Seller or any Affiliate or, if not prepared by such Seller or any Affiliate, to the extent that information contained therein was supplied by such Seller or any Affiliate) by such Seller or any Affiliate (other than the Company) to the Company or the Agents pursuant to or in connection with any Transaction Document shall be, true and accurate in every material respect on the date as of which such information is or will be furnished (unless such information relates to another date), and such information is not, and shall not be (as the case may be) incomplete by omitting to state a material fact or any fact necessary to make the statements contained therein not misleading as of such date. (o) PROCEEDS BANKS; PAYMENT INSTRUCTIONS. The names and addresses of all the Lockbox Processors, together with the account numbers of the Lockbox Accounts into which collections are deposited at such institutions, are specified in SCHEDULE III. The Sellers have transferred all of their right, title and interest in each Lockbox Account to the Company. Each Lockbox Processor has executed and delivered to the Company and the Agents a Lockbox Agreement. Each Seller has instructed all Obligors to submit all payments on Receivables and Related Property directly to one of the Lockbox Accounts. (p) VALID TRANSFERS. No transfer of any Receivables or any Receivables Property to the Company by such Seller constitutes a fraudulent transfer or fraudulent conveyance or is otherwise void or voidable under similar laws or principles, the doctrine of equitable subordination or for any other reason. The transfers of Receivables and Receivables Property by such Seller to the Company pursuant to this Agreement, and all other transactions between such Seller and the Company, have been and will be made in good faith and without intent to hinder, delay or defraud creditors of such Seller, and such Seller acknowledges that it has received and will receive fair consideration and reasonably equivalent value for the purchases by the Company of Receivables and Receivables Property hereunder. The purchase of Receivables and Receivables Property by the Company from such Seller constitutes a true sale of such Receivables and Receivables Property under applicable state law. (q) TRADE NAMES. Such Seller uses no trade name in the furnishing of its products or services which generate Receivables other than its actual corporate name and the trade names set forth for such Seller in SCHEDULE VII. During the five years preceding the date hereof, except as set forth in SCHEDULE VII, (i) such Seller has not been known by any legal name or trade name other than its corporate name, (ii) nor has such Seller been the subject of any merger or other corporate reorganization within the last five years. (r) COMPLIANCE WITH APPLICABLE LAWS. Such Seller is in compliance with the requirements of all applicable laws, rules, regulations, and orders of all governmental authorities (federal, state, local or foreign, and including, without limitation, environmental laws), a breach of any of which, individually or in the aggregate, would be reasonably likely either (i) to have a material adverse effect on (A) the business, operations, business prospects or condition (financial or other) of such Seller or (B) the ability of such Seller to 21 perform its obligations under this Agreement and the other Transaction Documents, or (ii) to impair the collectibility of any Receivables or any Receivables Property or the enforceability or validity of any Contract. (s) TAXES. Such Seller has filed all tax returns (federal, state and local) required by law to be filed and has paid or made adequate provision for the payment of all taxes, assessments and other governmental charges due from such Seller or is contesting any such tax, assessment or other governmental charge in good faith through appropriate proceedings. Such Seller knows of no basis for any material additional tax assessment for any fiscal year for which adequate reserves have not been established. (t) ACCOUNTING TREATMENT. Such Seller will not prepare any financial statements that shall account for the transactions contemplated hereby in a manner which is, nor will it in any other respect (except for tax purposes) account for the transactions contemplated hereby in a manner which is, inconsistent with the Company's ownership interest in the Receivables and Receivables Property. (u) ERISA MATTERS. (i) Except as specifically disclosed in SCHEDULE X hereto, such Seller and each of its ERISA Affiliates is in compliance in all material respects with the applicable provisions of ERISA and the regulations and published interpretations thereunder with respect to each Plan of such Seller or any of its ERISA Affiliates, except for such noncompliance which could not reasonably be expected to result in a Material Adverse Effect with respect to such Seller. (ii) No Reportable Event has occurred as to which such Seller or any of its ERISA Affiliates was required to file a report with the PBGC, other than reports for which the 30-day notice requirement is waived, reports that have been filed and reports the failure of which to file would not reasonably be expected to result in a Material Adverse Effect with respect to such Seller. (iii) Except as specifically disclosed in SCHEDULE X hereto, as of the Effective Date, the present value of all benefit liabilities under each Plan of such Seller or any of its ERISA Affiliates (on an ongoing basis and based on those assumptions used to fund such Plan) did not, as of the last valuation report applicable thereto, exceed the value of the assets of such Plan. (iv) Neither such Seller nor any of its ERISA Affiliates has incurred any Withdrawal Liability that could reasonably be expected to result in a Material Adverse Effect with respect to such Seller. (v) Neither such Seller nor any of its ERISA Affiliates has received any notification that any Multiemployer Plan is in reorganization or has been terminated within the meaning of Title IV of ERISA, or that a reorganization or termination has resulted or could reasonably be expected to result, through 22 increases in the contributions required to be made to such Plan or otherwise, in a Material Adverse Effect with respect to such Seller. (v) ELIGIBLE CONTRACTS: CREDIT AND COLLECTION POLICY. The forms of Contracts used by such Seller to originate Receivables are attached as SCHEDULE VI; and SCHEDULE V accurately describes such Seller's Policies relating to Contracts and Receivables in effect on the Closing Date. (w) SOLVENCY. Both prior to and after giving effect to the transactions contemplated by the Transaction Documents, (i) the assets of such Seller, at fair valuation, will exceed its liabilities (including contingent liabilities), (ii) the capital of such Seller will not be unreasonably small to conduct its business, and (iii) such Seller will not have incurred debts, and does not intend to incur debts, beyond its ability to pay such debts as they mature. (x) INVESTMENT COMPANY ACT. Neither such Seller nor any of such Seller's Subsidiaries is (i) an "investment company" registered or required to be registered under the 1940 Act, or (ii) a "holding company", or a "subsidiary company" or an "affiliate" of a "holding company" within the meaning of the Public Utility Holding Company Act of 1935, as amended. (y) OWNERSHIP. All of the issued and outstanding capital stock of such Seller (other than RS) is owned, directly or indirectly, by RS. (z) INDEBTEDNESS TO COMPANY. Immediately prior to consummation of the transactions contemplated hereby on the Effective Date, such Seller had no outstanding Indebtedness to the Company other than amounts permitted by this Agreement or amounts outstanding under the Subordinated Note. (aa) RECEIVABLES DOCUMENTS. Upon the delivery, if any, by such Seller to the Company of licenses, rights, computer programs, related materials, computer tapes, disks, cassettes and data relating to the administration of the Purchased Receivables pursuant to subsection 5.01(r), the Company shall have been furnished with all materials and data necessary to permit immediate collection of the Purchased Receivables without the participation of such Seller in such collection. (bb) RECEIVABLES LISTS. The Receivables Lists set forth in all material respects an accurate and complete listing as of the Cut-Off Date of all Receivables to be transferred to the Company on the Effective Date and the information contained therein with respect to the identity and Principal Amount of each such Receivable is true and correct in all material respects as of the Cut-Off Date. The representations and warranties set forth in this SECTION 4.02 shall survive the transfer and assignment of the respective Receivables to the Company pursuant to this Agreement. Each Seller hereby represents and warrants to the Company, as of the Effective Date and each Payment Date, that the representations and warranties of such Seller set forth in 23 SECTION 4.02 are true and correct as of such date. Upon discovery by any Seller or the Company of a breach of any of the foregoing representations and warranties, the party discovering such breach shall give prompt written notice to the other. ARTICLE V GENERAL COVENANTS Section 5.01. AFFIRMATIVE COVENANTS OF THE SELLERS. Each Seller covenants that, until the Purchase Termination Date shall have occurred with respect to such Seller and there are no amounts outstanding with respect to the Purchased Receivables previously sold by such Seller to the Company (other than Charged-off Receivables): (a) PRESERVATION OF CORPORATE EXISTENCE AND NAME. Such Seller will preserve and maintain in all material respects its corporate existence, rights, franchises and privileges in the jurisdiction of its incorporation, and qualify and remain qualified in good standing as a foreign corporation in each jurisdiction where the failure to preserve and maintain such existence, rights, franchises, privileges and qualification could have a Material Adverse Effect with respect to such Seller. (b) MAINTENANCE OF PROPERTY. Such Seller will keep all property and assets useful and necessary in its business in good working order and condition (normal wear and tear excepted). (c) DELIVERY OF COLLECTIONS. In the event that such Seller receives Collections, such Seller agrees to pay to the applicable Collection Account all payments received by such Seller in respect of the Receivables as soon as practicable after receipt thereof by such Seller. (d) COMPLIANCE WITH LAWS, ETC. Such Seller shall comply in all material respects with all applicable laws, rules, regulations and orders applicable to the Receivables and the Receivables Property, including, without limitation, rules and regulations relating to truth in lending, fair credit billing, fair credit reporting, equal credit opportunity, fair debt collection practices and privacy, where failure to so comply could reasonably be expected to have a materially adverse impact on the amount of Collections thereunder. (e) VISITATION RIGHTS. At any reasonable time during normal business hours and from time to time, such Seller shall permit (i) the Company, or any of its agents or representatives, (A) to examine and make copies of and abstracts from the records, books of account and documents (including, without limitation, computer tapes and disks) of such Seller relating to Receivables and Related Property owned or to be purchased by the Company hereunder, including without limitation, the related Contracts and purchase orders and other agreements and (B) following the termination of the appointment of RS as Servicer or of such Seller as a Servicing Party with respect to the Receivables, to be present at the offices and properties of such Seller to administer and control the collection 24 of amounts owing on the Purchased Receivables and (ii) the Company, or any of its agents or representatives, or the Trustee (upon the giving of appropriate notice to the Company) to visit the properties of such Seller for the purpose of examining such records, books of account and documents, and to discuss the affairs, finances and accounts of such Seller relating to the Receivables or such Seller's performance hereunder with any of its officers or directors and with its independent certified public accountants. (f) KEEPING OF RECORDS AND BOOKS OF ACCOUNT. Such Seller will maintain and implement administrative and operating procedures (including, without limitation, an ability to recreate records evidencing Receivables and the Receivables Property in the event of the destruction of the originals thereof), and keep and maintain all documents, books, records and other information which, in each case, in the reasonable discretion of the Company, are necessary or advisable for the collection of all Receivables and the Receivables Property (including, without limitation, records adequate to permit the daily identification of each new Receivable and all Collections of and adjustments to each existing Receivable). Upon the request of the Company, such Seller will deliver copies of all books and records maintained pursuant to this SECTION 5.01(g) to the Agents. (g) PERFORMANCE AND COMPLIANCE WITH POLICIES, RECEIVABLES AND CONTRACTS. Such Seller will (i) perform its obligations in accordance with and comply in all material respects with the Policies, as amended from time to time in accordance with the Transaction Documents and (ii) at its expense, timely and fully perform and comply with all material provisions, covenants and other promises required to be observed by it under the Receivables and the Contracts related to the Receivables and Related Property and all purchase orders and other agreements related to such Receivables and Related Property. (h) OBLIGATIONS. Seller shall pay, discharge or otherwise satisfy at or before maturity or before they become delinquent, as the case may be, all its other obligations of whatever nature, except where (a) the amount of validity thereof is currently being contested in good faith by appropriate proceedings and reserves in conformity with GAAP with respect thereto have been provided on its books, or (b) the failure to so pay, discharge or satisfy all such obligations would not, in the aggregate, be reasonably likely to have a Material Adverse Effect in respect of such Seller and would not subject any of its properties to any Lien prohibited by subsection 5.03(b). (i) LOCATION OF RECORDS. Such Seller will keep its principal place of business and chief executive office, and the offices where it keeps its records concerning the Receivables, all Receivables Property, all Contracts and purchase orders and other agreements related to such Receivables (and all original documents relating thereto), at the address(es) of such Seller referred to in SCHEDULE II or, upon 30 days' prior written notice to the Company and the Agents, at such other locations in jurisdictions where all action required by SECTION 5.01(r) shall have been taken and completed; PROVIDED, HOWEVER, that the Rating Agency Condition shall have been satisfied with respect to any changes in location and such location is not in a state which is within the Tenth Circuit unless it delivers an opinion of counsel reasonably acceptable to the Rating Agencies to the effect 25 that OCTAGON GAS SYSTEMS, INC. V. RIMMER, 995 F.2d 948 (10th Cir. 1993), is no longer controlling precedent in the Tenth Circuit. (j) FURNISHING COPIES, ETC. Such Seller shall furnish to the Company (i) upon the Company's request, a certificate of the chief financial officer of such Seller certifying, as of the date thereof, that no Purchase Termination Event has occurred and is continuing and setting forth the computations used by the chief financial officer of such Seller in making such determination; (ii) as soon as possible and in any event within two Business Days after a Responsible Officer of such Seller becomes aware of the occurrence of any Purchase Termination Event or Potential Purchase Termination Event, a statement of a Responsible Officer of such Seller setting forth details of such Purchase Termination Event or Potential Purchase Termination Event and the action that such Seller proposes to take or has taken with respect thereto; (iii) promptly after obtaining knowledge that a Receivable was, at the time of the Company's purchase thereof, not an Eligible Receivable, notice thereof; (iv) promptly after obtaining knowledge of any threatened action or proceeding affecting such Seller or its Subsidiaries before any court, governmental agency or arbitrator that may reasonably be expected to materially and adversely affect the enforceability of this Agreement and the other Transaction Documents, notice of such action or proceeding; and (v) promptly following the Company's request therefor, such other information, documents, records or reports with respect to the Receivables or the related Contracts or the conditions or operations, financial or otherwise, of such Seller, as the Company may from time to time reasonably request. (k) OBLIGATION TO RECORD AND REPORT. Such Seller shall to the fullest extent permitted by GAAP and by applicable law, record each purchase of the Purchased Receivables as a sale on its books and records, reflect each purchase of Purchased Receivables in its financial statements and tax returns as a sale and recognize gain or loss, as the case may be, on each purchase of Purchased Receivables. (l) CONTINUING COMPLIANCE WITH THE UNIFORM COMMERCIAL CODE. Such Seller shall, without limiting the requirements of SECTION 5.01(q), at its expense, preserve, continue, and maintain or cause to be preserved, continued, and maintained the Company's valid and properly perfected title to each Receivable and the Receivables Property purchased hereunder, including, without limitation, filing or recording UCC financing statements in each relevant jurisdiction. (m) PROCEEDS OF RECEIVABLES. Such Seller shall use all reasonable efforts to cause all payments made by Obligors in respect of Purchased Receivables and Related Property to be made to a Lockbox Account. (n) LOCKBOX AGREEMENTS. Such Seller shall, on or prior to the date of this Agreement, deliver to the Company a Lockbox Agreement, duly countersigned and agreed to by each bank holding a Lockbox Account of such Seller or, if any such bank fails to agree to the terms thereof, by such other bank as shall agree to become a Lockbox Processor for such Seller on the terms and conditions set forth in such Lockbox Agreement. 26 (o) TAXES. Such Seller will file all tax returns and reports required by law to be filed by it and will pay all taxes and governmental charges thereby shown to be owing, except any such taxes or charges which are being diligently contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP have been set aside on its books. (p) SEPARATE CORPORATE EXISTENCE OF THE COMPANY. Such Seller hereby acknowledges that the Agents, the Trustee and the Investor Certificateholders are entering into the transactions contemplated by the Transaction Documents in reliance upon the Company's identity as a legal entity separate from the Sellers and all other RS Persons. Therefore, from and after the date hereof, such Seller will take (or refrain from taking, as the case may be) such actions and will cause each other RS Person to take (or refrain from taking, as the case may be) such actions, as shall be required in order that: (i) No RS Person will pay the Company's operating expenses and liabilities, recognizing, however, that certain organizational expenses of the Company and expenses relating to creation and initial implementation of the securitization program contemplated by the Transaction Documents have been or shall be paid by such Seller. (ii) Each RS Person will conduct its business at offices segregated from the Company's offices. If office space is leased from any RS Person, a separate written lease on arm's-length terms will be in effect at a market rental rate. (iii) Each RS Person will maintain corporate records and books of account separate from those of the Company and telephone numbers, mailing addresses, stationery and other business forms that are separate and distinct from those of the Company. (iv) Any financial statements of any RS Person which are consolidated to include the Company will contain a detailed note substantially in the form, and to the effect, of the note set forth on ANNEX 1. (v) The Company's assets will be maintained in a manner that facilitates their identification and segregation from those of such Seller and the other RS Persons. (vi) Each RS Person will strictly observe corporate formalities in its dealings with the Company, and funds or other assets of the Company will not be commingled or pooled with those of any RS Person. No RS Person will maintain joint bank accounts with the Company or other depository accounts with the Company to which any RS Person has independent access. 27 (vii) Any transaction between the Company and any RS Person will be fair and equitable to the Company, will be the type of transaction which would be entered into by a prudent Person in the position of the Company with an RS Person, and will be on terms which are at least as favorable to the Company as may be obtained from a Person which is not an RS Person, IT BEING UNDERSTOOD AND AGREED that the transactions contemplated in the Transaction Documents meet the requirements of this clause (vii). (viii) No RS Person will hold itself out, or permit itself to be held out, as having agreed to pay or be liable for the debts of the Company. (ix) The duly elected Board of Directors of the Company and the Company's duly appointed officers shall at all times have sole authority to control decisions and actions with respect to the daily business affairs of the Company. (x) The assumptions and factual recitations set forth in the Specified Bankruptcy Opinion Provisions remain true and correct with respect to such Seller and (b) such Seller complies with those procedures described in such provisions which are applicable to such Seller, except, in each case above, for such failure to take actions or refrain from taking actions that are in the aggregate, not material. (q) DEPOSITS IN PROGRAM ACCOUNTS. Such Seller shall use all reasonable efforts to minimize the deposit of any funds other than Collections in any of the Lockbox Accounts, the Collection Account and the Concentration Account. (r) FURTHER ACTION EVIDENCING PURCHASES. (i) Such Seller agrees that from time to time, at its expense, it will promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary or desirable or that the Company may reasonably request, to protect or more fully evidence the Company's ownership, right, title and interest in the Receivables and Receivables Property sold by such Seller and its rights under the Contracts with respect thereto, or to enable the Company to exercise or enforce any of its rights hereunder or under any other Transaction Document. Without limiting the generality of the foregoing, such Seller will upon the request of the Company (A) execute and file such financing or continuation statements, or amendments thereto, and such other instruments or notices, as may be necessary or, in the reasonable opinion of the Company or the Agents, desirable, (B) indicate on its books and records (including, without limitation, master data processing records) that the Receivables and Receivables Property have been sold and assigned to the Company and, in turn, the Company has sold and assigned its interest therein to the Trustee, and provide to the Company, upon request, copies of any such records, (C) contact customers to confirm and verify Receivables and (D) obtain the agreement of any Person having 28 a Lien on any Receivables owned by such Seller (other than any Lien created or imposed hereunder or under the Pooling Agreement or any Permitted Lien) to release such Lien upon the purchase of any such Receivables by the Company. (ii) Such Seller hereby irrevocably authorizes the Company and the Trustee to file one or more financing or continuation statements, and amendments thereto, relative to all or any part of the Receivables and Receivables Property sold or to be sold by such Seller, without the signature of such Seller where permitted by law. (iii) If such Seller fails to perform any of its agreements or obligations under this Agreement, the Company or its assignees may (but shall not be required to) perform, or cause performance of, such agreements or obligations, and the expenses of the Company incurred in connection therewith shall be payable by such Seller as provided in SECTION 9.06. (iv) Such Seller agrees that, whether or not a Purchase Termination Event has occurred: (A) the Company (and its assignees) shall have the right at any time to notify, or require that such Seller at its own expense notify, the respective Obligors of the Company's ownership of the Purchased Receivables and Receivables Property and may direct that payment of all amounts due or to become due under the Purchased Receivables be made directly to the Company or its designee; (B) such Seller shall, upon the Company's written request and at such Seller's expense, (I) assemble all of such Seller's documents, instruments and other records (including credit files and computer tapes or disks) that (A) evidence or will evidence or record Receivables sold by such Seller and (B) are otherwise necessary or desirable to effect Collections of such Purchased Receivables (collectively, the "DOCUMENTS") and (II) deliver the Documents to the Company or its designee at a place designated by the Company. In recognition of such Seller's need to have access to any Documents which may be transferred to the Company hereunder, whether as a result of its continuing business relationship with any Obligor for Receivables purchased hereunder or as a result of its responsibilities as a Sub-Servicer, the Company hereby grants to such Seller an irrevocable license to access the Documents transferred by such Seller to the Company and to access any such transferred computer software in connection with any activity arising in the ordinary course of such Seller's business or in performance of such Seller's duties as a Servicing Party, PROVIDED that such Seller shall not disrupt or otherwise interfere with the Company's use of and access to the Documents and its computer software during such license period; 29 (C) such Seller hereby grants to the Company an irrevocable power of attorney (coupled with an interest) to take any and all steps in such Seller's name necessary or desirable, in the reasonable opinion of the Company, to collect all amounts due under the Purchased Receivables, including without limitation, endorsing such Seller's name on checks and other instruments representing Collections, enforcing the Purchased Receivables and exercising all rights and remedies in respect thereof; and (D) upon written request of the Company, such Seller will (I) deliver to the Company or a party designated by the Company all licenses, rights, computer programs, related material, computer tapes, disks, cassettes and data necessary to the immediate collection of the Purchased Receivables by the Company, with or without the participation of such Seller (excluding software licenses which by their terms are not permitted to be so delivered, PROVIDED that such Seller shall use reasonable efforts to obtain consent to the relevant licensor to such delivery) and (II) make such arrangements with respect to the collection of the Purchased Receivables as may be reasonably required by the Company. (s) LEGEND REQUIREMENT FOR CHATTEL PAPER. Such Seller agrees (i) at all times to comply with the terms and provisions set forth in Schedule 3 to the Pooling Agreement and (ii) that any Receivable that constitutes or is evidenced by "chattel paper" as defined in Article 9 of the UCC as in effect in the Relevant UCC State shall bear a legend stating that such Receivable has been conveyed to the Trust. (t) COMPUTER FILES. At its own cost and expense, retain the ledger used by such Seller as a master record of the Obligors and retain copies of all documents relating to each Obligor as custodian and agent for the Company and other Persons with interests in the Purchased Receivables and mark the computer tape or other physical records of the Purchased Receivables to the effect that interests in the Purchased Receivables existing with respect to the Obligors listed thereon have been sold to the Company and that the Company has sold an interest therein and, subsidiarily, has granted a security interest therein. Section 5.02. REPORTING REQUIREMENTS. Each Seller shall furnish to the Company and its assigns (including the Agents) from the date hereof until the Purchase Termination Date shall have occurred with respect to such Seller and until there are no amounts outstanding with respect to Purchased Receivables previously sold by such Seller to the Company: (a) COMPLIANCE CERTIFICATE. Not later than 95 days after the end of each fiscal year and not later than 50 days after the end of each of the first three fiscal quarters of each fiscal year, a certificate of a Responsible Officer of such Seller stating that, to the best of such Responsible Officer's knowledge, such Seller during such period, has observed or performed all of its covenants and other agreements, and satisfied every condition, contained in the Transaction Documents to which it is a party to be observed, performed or satisfied by it, and that such Responsible Officer has obtained no knowledge 30 of any Purchase Termination Event or Potential Purchase Termination Event except as specified in such certificate; (b) ERISA. Promptly after the filing or receiving thereof, copies of all reports and notices with respect to any Reportable Event defined in Title of ERISA which such Seller files under ERISA with the Internal Revenue Service, the Pension Benefit Guaranty Corporation or the U.S. Department of Labor or which such Seller receives from the Pension Benefit Guaranty Corporation if, in each case, such report or notice relates to an event or condition that could reasonably be expected to give rise to a Termination Notice, the termination of the Trust or a Material Adverse Effect; (c) TERMINATION EVENTS: OTHER MATERIAL EVENTS. As soon as possible and in any event within two Business Days after a Responsible Officer of such Seller obtains knowledge of each Purchase Termination Event, Potential Purchase Termination Event, Servicer Default, Potential Servicer Default or any other event that has a material likelihood of having a Material Adverse Effect with respect to a Seller, a written statement of the treasurer or chief financial officer of such Seller setting forth details of such event and the action that such Seller proposes to take with respect thereto; and (d) OTHER. Promptly, from time to time, such other information, documents, records or reports respecting the Receivables or the condition or operations, financial or otherwise, of such Seller as the Company or the Agents may from time to time reasonably request in order to protect the interests of the Company and the Agents under or as contemplated by the Transaction Documents. Section 5.03. NEGATIVE COVENANTS. Each Seller covenants that, until the Purchase Termination Date shall have occurred with respect to such Seller and there are no amounts outstanding with respect to Purchased Receivables previously sold by such Seller to the Company: (a) RECEIVABLES TO BE ACCOUNTS, GENERAL INTANGIBLES OR CHATTEL PAPER. Such Seller will take no action to cause any Receivable to be evidenced by any "instrument" other than, provided that the procedures set forth in Schedule 3 to the Pooling Agreement are fully implemented with respect thereto, an instrument which together with a security agreement constitutes "chattel paper" (each as defined in the UCC as in effect in the Relevant UCC State). Such Seller will take no action to cause any Receivable to be anything other than an "account", "general intangible" or "chattel paper" (each as defined in the UCC as in effect in the Relevant UCC State). (b) SECURITY INTERESTS. Except for the conveyances hereunder and as provided below, such Seller will not sell, pledge, assign or transfer to any other Person, or grant, create, incur, assume or suffer to exist any other Lien on any Receivable or Receivables Property, whether now existing or hereafter created, or any interest therein; such Seller will immediately notify the Company of the existence of any other Lien on any Receivable or Receivables Property; and such Seller shall defend the right, title and interest of the Company in, to and under the Receivables or Receivables Property, whether now existing 31 or hereafter created, against all claims of third parties claiming through or under such Seller; PROVIDED, HOWEVER, that nothing in this subsection 5.03(b) shall prevent or be deemed to prohibit such Seller from suffering to exist upon any of the Receivables any Permitted Lien. (c) EXTENSION OR AMENDMENT OF RECEIVABLES. Such Seller will not extend, rescind, cancel, make any Dilution Adjustment to, amend or otherwise modify, or attempt or purport to extend, rescind, cancel, make any Dilution Adjustment to, amend or otherwise modify, the terms of any Purchased Receivables, or otherwise take any action which is intended to cause or permit an Ineligible Receivable to cease to be an Eligible Receivable, except in any such case (a) in accordance with the terms of the Policies, (b) as required by any Requirement of Law or (c) in the case of Dilution Adjustments (whether or not permitted by any other clause of this sentence), upon making a Seller Adjustment Payment pursuant to Section 2.05. (d) CHANGE IN BUSINESS OR CREDIT AND COLLECTION POLICY. Such Seller will not make or permit to be made any change in the character of its business or in its policies in any material respect that is materially adverse to the interests of the Company or its assigns (including the Trustee and the Investor Certficateholders). (e) PLACE OF BUSINESS. ETC. Such Seller will not change its principal place of business or chief executive office from the location listed in SECTION 4.02(k) or change the location of its records relating to the Receivables and Related Property from those specified on SCHEDULE II, unless in any such event such Seller shall have given the Company and the Agents at least thirty days' prior written notice thereof fully in accordance with the terms and provisions of subsection 5.01(i) and shall have taken all action necessary or reasonably requested by the Company or the Agents to amend its existing financing statements and continuation statements so that they are not misleading and to file additional financing statements in all applicable jurisdictions to perfect the interests of the Company and the Agents in all of the Receivables and Receivables Property. (f) CHANGE IN NAME. Such Seller will not change its name, identity or corporate structure in any manner which would or might make any financing statement or continuation statement (or other similar instrument) relating to this Agreement seriously misleading within the meaning of Section 9-402(7) of the UCC, or impair the perfection of the Company's interest in any Receivable under any other similar law, without having (i) delivered 30 days' prior written notice to the Company, the Servicer and the Trustee and (ii) taken all action required by subsection 5.01(a). (g) CHANGE IN PAYMENT INSTRUCTIONS TO OBLIGORS. Such Seller shall not instruct the Obligor on any Receivables to make payments with respect to such Receivables and Receivables Property other than to the places listed in SCHEDULE III (or to the applicable Collection Account). 32 (h) ACCOUNTING CHANGES. Unless agreed to by the Agents, such Seller shall not make any material change (i) in accounting treatment and reporting practices except as permitted or required by GAAP, (ii) in tax reporting treatment except as permitted or required by law, in any case, as disclosed to the Agents in the notes to the financial statements delivered to the Agents pursuant to SECTION 5.02, or otherwise, (iii) in the calculation or presentation of financial and other information contained in other reports delivered hereunder, or (iv) in any financial policy of such Seller if such change could have a material adverse effect on the Receivables taken as a whole or the collection thereof. (i) INELIGIBLE RECEIVABLES. Without the prior written approval of the Company, such Seller shall not take any action to cause, or which would permit, a Receivable that was designated as an Eligible Receivable on the Payment Date relating to such Receivable to cease to be an Eligible Receivable, except in any such case upon making a Seller Repurchase Payment pursuant to Section 2.06. (j) BUSINESS OF THE SELLER. Such Seller shall not fail to maintain and operate the business currently conducted by such Seller and business activities reasonably incidental or related thereto in substantially the manner in which it is presently conducted and operated if such failure would change in any material respect (i) the character of its business that is adverse to the interest of the Company or its assigns (including the Trustee and the Investor Certificateholders) or (ii) its Policies, except (x) if such change is necessary under any Requirement of Law, (y) if such change would not reasonably be expected to have a Material Adverse Effect with respect to the Servicer or (z) the Rating Agency Condition is satisfied with respect thereto. ARTICLE VI PURCHASE TERMINATION EVENTS Section 6.01. PURCHASE TERMINATION EVENTS. If, with respect to any Seller, any of the following events (each, a "PURCHASE TERMINATION EVENT" with respect to such Seller) shall have occurred and be continuing: (a) The Seller shall fail to make any payment or deposit to be made by it hereunder when due and such failure shall remain unremedied for two Business Days; or (b) There shall have occurred (i) an Early Amortization Event set forth in Section 7.1 of the Pooling Agreement or (ii) the Amortization Period with respect to all outstanding Series shall have occurred and be continuing; or (c) Any representation or warranty made or deemed to be made by such Seller or any of its officers under or in connection with any Transaction Document, Monthly Settlement Statement or other information, statement, record, certificate, document or report delivered pursuant to a Transaction Document shall prove to have been false or incorrect in any material respect when made or deemed made (including in each case by omission of material information necessary to make such representation, warranty, 33 certificate or statement not misleading); PROVIDED, that no such event shall constitute a Purchase Termination Event unless such event shall continue unremedied for a period of 30 days from the earlier of (A) the date any Responsible Officer of such Seller obtains knowledge thereof and (B) the date such Seller receives notice of the incorrectness of such representation or warranty from the Company; PROVIDED, FURTHER,that a Purchase Termination Event shall not be deemed to have occurred under this paragraph (c) based upon a breach of any representation or warranty set forth in Section 4.02 with respect to any Receivable if the Sellers shall have complied with the provisions of subsection 2.06, as the case may be; or (d) Such Seller shall fail to perform or observe any other term, covenant or agreement contained in subsection 5.01(d), (g), (h) or SECTION 5.03 of this Agreement on its part to be performed or observed and any such failure shall remain unremedied for five Business Days; or such Seller shall fail to perform or observe any term, covenant or agreement contained in SECTION 5.02 of this Agreement; PROVIDED, that no failure to perform or observe any term, covenant or agreement contained in Section 5.02 of this Agreement (except for any term, covenant or agreement contained in subsection 5.02(e)) shall constitute a Purchase Termination Event unless such event shall continue unremedied for a period of 30 days from the earlier of (A) the date any Responsible Officer of such Seller obtains knowledge of such failure and (B) the date such Seller receives notice of such failure from the Company; PROVIDED, FURTHER, that a Purchase Termination Event shall not be deemed to have occurred under this paragraph (d) based upon a breach of any covenant set forth in subsection 5.01(d), (g) or (h) or Section 5.03 with respect to any Receivable if the Sellers shall have complied with the provisions of subsection 2.06, as the case may be; or (e) Such Seller shall fail to perform or observe any other term, covenant or agreement contained in any Transaction Document on its part to be performed or observed and any such failure shall remain unremedied for a period of 30 days from the earlier of (A) the date any Responsible Officer of such Seller obtains knowledge of such failure and (B) the date such Seller receives notice thereof from the Company, the Servicer, the Trustee or any Agent; or (f) Any Transaction Document to which such Seller is a party shall cease, for any reason, to be in full force and effect, or RS or such Seller shall so assert in writing, or the Company shall fail to have a valid and perfected first priority ownership interest in the Receivables and the Receivables Property; or (g) (i) such Seller shall commence any case, proceeding or other action (A) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts, or (B) seeking appointment of a receiver, trustee, custodian or other similar official for it or for all or any substantial part of its assets, or such Seller shall make a general assignment for the benefit of its creditors; or (ii) 34 there shall be commenced against such Seller any case, proceeding or other action of a nature referred to in clause (i) above which (A) results in the entry of an order for relief or any such adjudication or appointment or (B) remains undismissed, undischarged or unbonded for a period of 60 days; or (iii) there shall be commenced against such Seller or any of its Subsidiaries any case, proceeding or other action seeking issuance of a warrant of attachment, execution, distraint or similar process against all or any substantial part of its assets which results in the entry of an order for any such relief which shall not have been vacated, discharged, or stayed or bonded pending appeal within 60 days from the entry thereof; or (iv) such Seller or any of its respective Subsidiaries shall take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth in clause (i), (ii), or (iii) above; or (v) such Seller shall generally not, or shall be unable to, or shall admit in writing its inability to, pay its debts as they become due; or (h) RS has been terminated as Servicer following a Servicer Default with respect to RS under the Servicing Agreement; or (i) a Responsible Officer of RS receives notice or becomes aware that a notice of Lien has been filed by the PBGC against any Seller, the Company or the Trust under Section 412(n) of the Code or Section 302(f) of ERISA for a failure to make a required installment or other payment to a plan to which Section 412(n) of the Code or Section 302(f) of ERISA applies; then, (x) in the case of any Purchase Termination Event described in paragraph (b)(i), (g) and (i) above, the obligation of the Company to purchase Receivables shall thereupon automatically terminate without further notice of any kind, which is hereby waived by such Seller, (y) in the case of any Purchase Termination Event described in paragraph (b)(ii) above, the obligation of the Company to purchase Receivables shall thereupon terminate without notice of any kind, which is hereby waived by such Seller, unless both the Company and such Seller agree in writing that such event shall not trigger an Early Termination hereunder and (z) in the case of any other Purchase Termination Event, so long as such Purchase Termination Event shall be continuing, the Company may terminate its obligation to purchase Receivables from such Seller by written notice to such Seller (any termination with respect to any Seller pursuant to clause (x), (y) or (z) of this Article VI is herein called an "EARLY TERMINATION" with respect to such Seller); PROVIDED, HOWEVER, that in the event of an involuntary petition or proceeding as described in paragraphs (g)(ii) and (g)(iii) above, the Company shall not purchase Receivables from such Seller until such time, if any, as such involuntary petition or proceeding has been dismissed, PROVIDED that such dismissal shall have occurred within 60 days of the filing of such petition or the commencement of such proceeding. 35 Section 6.02. ADDITIONAL REMEDIES. Upon the occurrence of any Purchase Termination Event, the Company shall have, in addition to all other rights and remedies under this Agreement or otherwise, all other rights and remedies provided under the UCC of each applicable jurisdiction and other applicable laws, which rights shall be cumulative. Without limiting the foregoing, the occurrence of a Purchase Termination Event shall not deny to the Company any remedy (in addition to termination of the Company's obligation to purchase Receivables from any relevant Seller or Sellers) to which the Company may be otherwise appropriately entitled, whether by statute or other applicable law, at law or in equity. ARTICLE VII INDEMNIFICATION Section 7.01. INDEMNITIES BY THE SELLERS. Without limiting any other rights that the Company may have hereunder or under applicable law, each Seller hereby agrees to indemnify the Company from and against any and all claims, losses and liabilities (including reasonable attorneys' fees) (all the foregoing being collectively referred to as "INDEMNIFIED AMOUNTS") arising out of or resulting from this Agreement or any other Transaction Document or in respect of any Receivable, excluding, however, Indemnified Amounts (a) to the extent resulting from gross negligence or willful misconduct on the part of the Company and (b) resulting from any Obligor's inability to pay an amount due and payable with respect to a Receivable for credit reasons (it being understood that this clause (b) shall not limit SECTION 2.05), provided, however, that except as expressly provided in subparagraph (a) of this SECTION 7.01, in no event will any Seller have any indemnity or other obligation hereunder or otherwise with respect to any loss suffered in respect of any Eligible Receivable transferred to the Company in accordance with this Agreement, the parties hereby acknowledging that such transfers are to be without recourse. Without limiting or being limited by the foregoing, but subject to the proviso in the immediately preceding sentence, each Seller shall pay on demand to the Company any and all amounts necessary to indemnify the Company from and against any and all Indemnified Amounts relating to or resulting from: (a) the transfer by any Seller of any interest in any Receivable or Receivables Property or proceeds thereof; (b) reliance on any representation or warranty or statement made or deemed made by any Seller (or any of its officers) under or in connection with this Agreement or in any certificate or report delivered pursuant hereto that, in either case, shall have been false or incorrect in any material respect when made or deemed made; (c) the failure by any Seller to comply with any applicable law, rule or regulation of any governmental authority with respect to any Receivable or Receivables Property, or the nonconformity of any Receivable or Receivables Property with any such applicable law, rule or regulation; (d) the failure to vest and maintain vested in the Company an ownership interest in any Receivable or Receivables Property, free and clear of any Lien, other than a 36 Lien arising under the Transaction Documents, whether existing at the time of the purchase of such Receivable or Receivables Property or at any time thereafter; (e) the failure to file, or any delay in filing, financing statements or other similar instruments or documents under the UCC of any applicable jurisdiction or other applicable laws with respect to any Receivables or Receivables Property of any Seller; (f) any dispute, claim, offset or defense (other than discharge in bankruptcy of a Seller) of the Obligor to the payment of any Receivable of any Seller (including, without limitation, a defense based on such Receivable or the related Contract not being fully enforceable against the Obligor in accordance with its terms), or any other claim resulting from the sale of the merchandise or services related to any such Receivable or the furnishing or failure to furnish such merchandise or services; (g) any failure of any Seller to perform its duties or obligations under this Agreement or the Transaction Documents; (h) any products liability claim arising out of or in connection with merchandise, insurance or services that are the subject of any Receivable or Receivables Property; (i) the commingling of Collections of Receivables at any time with other funds of any Seller; (j) any claim involving environmental liability that relates to any property that has been, is now or hereafter will be owned, leased, operated or otherwise used by any Seller; (k) any tax or governmental fee or charge (but not including franchise taxes and taxes upon or measured by net income of the Company), all interest and penalties thereon or with respect thereto, and all out-of- pocket costs and expenses, including the reasonable fees and expenses of counsel in defending against the same, which may arise by reason of the purchase or ownership of any Receivable or Receivables Property, or any interest therein or in any goods which secure any such Receivables, any Receivables Property or any other rights or assets transferred hereunder; or (l) any investigation, litigation or proceeding related to this Agreement or in respect of any Receivable or Receivables Property of any Seller. Notwithstanding the foregoing, no Seller shall under any circumstances be required to indemnify the Company for any Indemnified Amounts that result from any delay in the collection of any Receivables or any default by an Obligor with respect to any Receivables. Section 7.02. INDEMNITIES BY THE COMPANY. Without limiting any other rights that the Sellers may have hereunder or under applicable law, the Company hereby agrees to indemnify each Seller from and against any and all claims, losses and liabilities (including reasonable 37 attorneys' fees) arising out of or resulting from such Seller's reliance on any representation or warranty made by the Company in this Agreement or in any certificate delivered pursuant hereto that, in either case, shall have been false or incorrect in any material respect when made or deemed made. ARTICLE VIII SUBORDINATED NOTE Section 8.01. SUBORDINATED NOTE. (a) On the initial Effective Date, the Company shall issue to the Sellers a subordinated note substantially in the form of EXHIBIT A (as amended, supplemented or otherwise modified from time to time, the "SUBORDINATED NOTE"). The aggregate principal amount of the Subordinated Note at any time shall be equal to the difference between (a) the aggregate principal amount on the issuance thereof and each addition to the principal amount of such Subordinated Note with respect to each Seller pursuant to the terms of SECTION 2.03 as of such time, MINUS (b) the aggregate amount of all payments made in respect of the principal of such Subordinated Note as of such time. All payments made in respect of the Subordinated Note shall be allocated among the Sellers by the Servicer. Each Seller's interest in the Subordinated Note shall equal the sum of each addition thereto allocated to such Seller pursuant to subsection 2.03(c) less the sum of each repayment thereof allocated to such Seller. Interest on the outstanding principal amount of the Subordinated Note shall accrue on the last day of each Settlement Period at a rate per annum equal to the Reference Rate in effect from time to time plus 2% from and including the initial Effective Date to but excluding the last day of each Settlement Period and shall be paid (x) on each Distribution Date with respect to the principal amount of the Subordinated Note outstanding from time to time during the Settlement Period immediately preceding such Distribution Date and/or (y) on the maturity date thereof. Principal hereunder not paid or prepaid pursuant to the terms hereof shall be payable on the maturity date of the Subordinated Note. Default in the payment of principal or interest under the Subordinated Note shall not constitute a Purchase Termination Event under this Agreement, a Servicer Default under any Servicing Agreement or an Early Amortization Event under the Pooling Agreement or any Supplement thereto. Section 8.02. RESTRICTIONS ON TRANSFER OF SUBORDINATED NOTE. Neither the Subordinated Note, nor any right of any Seller to receive payments thereunder, shall be assigned, transferred, exchanged, pledged, hypothecated, participated or otherwise conveyed. ARTICLE IX MISCELLANEOUS Section 9.01. AMENDMENT. Neither this Agreement nor any of the terms hereof may be amended, supplemented or modified except in a writing signed by the Company and the Sellers. Any amendment, supplement or modification shall not be effective until the Rating Agency Condition, if applicable, has been satisfied. 38 Section 9.02. NOTICES, ETC. All notices and other communications provided for hereunder shall, unless otherwise stated herein, be in writing (including facsimile communication) and shall be personally delivered or sent by certified mail, postage-prepaid, by facsimile or by overnight courier, to the intended party at the address or facsimile number of such party set forth under its name on the signature pages hereof or at such other address or facsimile number as shall be designated by such party in a written notice to the other parties hereto given in accordance with this SECTION 9.02. Copies of all notices and other communications provided for hereunder shall be delivered, if to the Administrative Agent, at its address at c/o BA Securities, Inc., 231 South LaSalle Street, Suite 1220, Chicago, Illinois 60697, Attention: Erik Ford, if to the Co-Agent, at its address at 270 Park Avenue, New York, New York 10017-2070, Attention: Karen Sharf, and if to the Servicer, at its address set forth on SCHEDULE IV. All notices and communications provided for hereunder shall be effective, (a) if personally delivered by express mail or courier, when received, (b) if sent by certified mail, three Business Days after having been deposited in the mail, postage prepaid and (c) if transmitted by facsimile, when sent, receipt confirmed by telephone or electronic means. Section 9.03. NO WAIVER; REMEDIES. No failure on the part of the Company or the Agents to exercise, and no delay in exercising, any right under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any such right preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. Section 9.04. BINDING EFFECT. This Agreement shall be binding upon and inure to the benefit of the Sellers and the Company and their respective successors and assigns, except that the Sellers shall have the right to assign their rights hereunder or any interest herein without the prior written consent of the Company and the Agents. This Agreement shall create and constitute the continuing obligations of the parties hereto in accordance with its terms, and shall remain in full force and effect as between the Company and the Sellers until terminated pursuant to Section 9.15. Section 9.05. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS, EXCEPT AS REQUIRED BY MANDATORY PROVISIONS OF LAW AND EXCEPT TO THE EXTENT THAT THE VALIDITY OR PROTECTION OF THE COMPANY'S OWNERSHIP OF THE RECEIVABLES AND RECEIVABLES PROPERTY, OR REMEDIES HEREUNDER IN RESPECT THEREOF, MAY BE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK. Section 9.06. COSTS, EXPENSES AND TAXES. In addition to the limited rights of indemnification granted to the Company under ARTICLE VII hereof, each Seller agrees to pay on demand all reasonable out-of-pocket costs and expenses of the Company in connection with the preparation, execution and delivery of this Agreement and the documents to be delivered hereunder, including, without limitation, the reasonable fees and out-of-pocket expenses of 39 counsel for the Company with respect thereto and with respect to advising the Company as to its rights and remedies under this Agreement, and all costs and expenses (including, without limitation, reasonable counsel fees and expenses), in connection with the enforcement (whether through negotiations, legal proceedings or otherwise) of this Agreement and the other Transaction Documents to be delivered hereunder. In addition, each Seller agrees to pay any and all stamp and other taxes and governmental fees payable or determined to be payable in connection with the execution, delivery, filing and recording of this Agreement or the other Transaction Documents to be delivered hereunder, and agree to hold the Company harmless from and against any and all liabilities with respect to or resulting from any delay in paying or omitting to pay such taxes and fees. Section 9.07. WAIVER OF JURY TRIAL. EACH PARTY HERETO WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER OR RELATING TO THIS AGREEMENT, ANY OTHER TRANSACTION DOCUMENT, OR ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR THEREWITH OR ARISING FROM ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN), ACTIONS OF ANY OF THE PARTIES HERETO OR ANY OTHER RELATIONSHIP EXISTING IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER TRANSACTION DOCUMENT, AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY. Section 9.08. INTEGRATION. This Agreement and the other Transaction Documents contain a final and complete integration of all prior expressions by the parties hereto with respect to the subject matter hereof and thereof and shall together constitute the entire agreement among the parties hereto with respect to the subject matter hereof and thereof, superseding all prior oral or written understandings. Section 9.09. CAPTIONS AND CROSS REFERENCES. The various captions (including, without limitation, the table of contents) in this Agreement are provided solely for convenience of reference and shall not affect the meaning or interpretation of any provision of this Agreement. Unless otherwise provided herein, references in this Agreement to any "SECTION," "EXHIBIT," "ANNEX" or "SCHEDULE" are to such Section of or Exhibit or Annex or Schedule to this Agreement, as the case may be. Section 9.10. EXECUTION IN COUNTERPARTS. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same agreement. Section 9.11. ACKNOWLEDGMENT OF ASSIGNMENTS. Each Seller hereby acknowledges and consents to the assignment by the Company of Receivables and Receivables Property and the rights of the Company under this Agreement pursuant to the Pooling and Servicing Agreements. Each Seller acknowledges that the Company will grant a security interest in the Lockbox Accounts, the Collection Account and the Concentration Account to the Trust for 40 the benefit of the Certificateholders. Each Seller agrees to take any action that the Company or the Trust may reasonably request in connection with such assignment or security interest. Section 9.12. NO PETITION IN BANKRUPTCY. Each Seller covenants and agrees that prior to the date which is one year and one day after the date of termination of this Agreement pursuant to Section 9.15, it will not institute against or join any other Person in instituting against the Company any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings or other similar proceeding under the laws of the United States or any State of the United States. Section 9.13. ADDITION OF SELLERS. Subject to the terms and conditions hereof, from time to time one or more wholly-owned Subsidiaries of RS may become additional Sellers parties hereto. If any such Subsidiary wishes to become an additional Seller, it shall submit a request to such effect in writing to the Company. The Company, in its sole and absolute discretion, may, subject to the terms and provisions of the Pooling and Servicing Agreements, agree to or deny any such request, PROVIDED that, if the Company shall have failed to respond to any such request within 30 days after receipt thereof, such request shall be deemed to have been denied. If the Company shall have agreed to any such request, such wholly-owned Subsidiary shall become an additional Seller party hereto on the related Seller Addition Date upon satisfaction of the conditions set forth in SECTION 3.02 and the conditions, if any, set forth in the Pooling and Servicing Agreements. Section 9.14. TREATMENT OF SELLERS OTHER THAN RS; TERMINATION THEREOF. (a) RS hereby covenants and agrees with the Company that RS shall not permit any Seller (other than RS) at any time to cease to be a wholly-owned Subsidiary of RS, except as provided in the following paragraph (b). (b) If RS wishes to permit any Seller (other than RS) to cease to be a wholly-owned Subsidiary of RS, then RS shall submit a request (a "SELLER TERMINATION REQUEST") to such effect in writing to the Company, which request shall be accompanied by a certificate prepared by a Responsible Officer of the Servicer indicating the Purchased Receivables Percentage applicable to such Seller as of the date of submission of such request (the "SELLER TERMINATION REQUEST DATE"). The Company, in its sole and absolute discretion may, subject to the terms and provisions of the Pooling and Servicing Agreements, consent to or deny any such Seller Termination Request, PROVIDED that, if the Company shall have failed to respond to any such Seller Termination Request within 30 days after receipt thereof, such Seller Termination Request shall be deemed to have been denied. If the Company shall have consented to any such Seller Termination Request, and such consent shall not be in violation of any applicable provision of the Pooling and Servicing Agreements, then the relevant Seller shall be terminated as a Seller hereunder immediately upon the consummation of the transaction in connection with which such Seller ceases to be a wholly-owned Subsidiary of RS; PROVIDED that, if the Purchased Receivables Percentage applicable to such Seller as of the relevant Seller Termination Request Date is less than 10%, then the Company shall consent to such Seller Termination Request unless such consent would violate the terms and provisions of the Pooling and Servicing Agreements. From and after the date any such Seller is terminated as a Seller pursuant to this subsection, the Company shall cease buying Receivables and Receivables Property from such Seller. Each such Seller shall be released as a Seller party hereto for all other purposes and shall cease to be a party hereto on such termination date. 41 (c) A terminated Seller shall have no further obligation under any Transaction Document, other than pursuant to SECTION 2.06, to repurchase Receivables previously sold by it to the Company. Section 9.15. TERMINATION. This Agreement will terminate at such time as (a) an Early Termination shall have occurred with respect to all Sellers herewith and (b) all Receivables purchased hereunder have been collected, and the proceeds thereof turned over to the Company and all other amounts owing to the Company hereunder shall have been paid in full or, if Receivables sold hereunder have not been collected, such Receivables have become Defaulted Receivables and the Company shall have completed its collection efforts with respect thereto; PROVIDED, HOWEVER, that the indemnities of the Sellers to the Company set forth in this Agreement shall survive such termination and PROVIDED further that the Company shall remain entitled to receive any collections on Receivables sold hereunder which have become Defaulted Receivables. 42 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. THE SELLERS: Rykoff-Sexton, Inc. By: /s/ ------------------------------------ Name: ---------------------------------- Title: --------------------------------- Address: 1050 Warrenville Road Lisle, Illinois 60532-5201 Telephone: (708) 964-1414 Facsimile: John Sexton & Co. By: /s/ ------------------------------------ Name: ---------------------------------- Title: --------------------------------- Address: 1050 Warrenville Road Lisle, Illinois 60532-5201 Telephone: ----------------------------- Facsimile: ----------------------------- THE COMPANY: Rykoff-Sexton Funding Corporation By: /s/ ------------------------------------ Name: ---------------------------------- Title: --------------------------------- Address: --------------------------------------- --------------------------------------- Telephone: ----------------------------- Facsimile: ----------------------------- THE SERVICER: Rykoff-Sexton, Inc. By: /s/ ------------------------------------ Name: ---------------------------------- Title: --------------------------------- Address: 1050 Warrenville Road Lisle, Illinois 60532-5201 Telephone: (708) 964-1414 Facsimile: ----------------------------- EX-13 23 FINANCIALS FROM ANNUAL REPORT FINANCIAL HIGHLIGHTS Rykoff-Sexton, Inc.
Fiscal Year 1996 1995 1994 (52 Weeks) (52 Weeks) (52 Weeks) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (Restated)** - ---------------------------------------------------------------------------------------------------- FOR THE YEAR Net sales $1,789,478 $1,569,019 $1,444,226 Income (loss) from continuing operations before provision (benefit) for income taxes and extraordinary item (27,819)* 15,626 6,926 Provision (benefit) for income taxes (11,039) 6,250 2,805 Income (loss) from continuing operations before extraordinary item (16,780) 9,376 4,121 Income (loss) before extraordinary item (16,780) 32,872 7,362 Net income (loss) (16,780) 32,872 5,918 Earnings (loss) per share from continuing operations before extraordinary item $ (1.12) $ .64 $ .28 Earnings (loss) per share before extraordinary item (1.12) 2.24 .50 Earnings (loss) per share (1.12) 2.24 .40 ------------------------------------------- AT YEAR END Total assets $ 611,856 $ 524,068 $ 470,018 Working capital 90,307 161,616 154,641 Current ratio 1.3:1 2.0:1 2.2:1 Shareholders' equity 192,500 206,540 173,307 Shareholders' equity per share $ 12.99 $ 14.15 $ 11.91 Common shares outstanding 14,817 14,598 14,547 -------------------------------------------
* INCLUDES THE EFFECT OF ADOPTING STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 121. ** AMOUNTS RESTATED TO REFLECT SALE OF DISCONTINUED TONE BROTHERS, INC. SUBSIDIARY IN OCTOBER 1994. PER SHARE DATA RESTATED TO REFLECT A 25% STOCK SPLIT IN JANUARY 1995.
DIVIDEND RECORD Fiscal Year 1996 1995 1994 - ---------------------------------------------------------------------------------------------------- CASH DIVIDENDS PER SHARE First Quarter $ --- $ --- $ --- Second Quarter .03 --- --- Third Quarter --- --- --- Fourth Quarter .03 .03 --- -------------------------------------------
STOCK PRICE DATA MARKET PRICE OF COMMON STOCK The following table sets forth the closing high and low market prices per share of Rykoff-Sexton, Inc.'s common stock. The Company's common stock is listed on the New York Stock Exchange under the trading symbol RYK.
Fiscal Year 1996 1995 1994 Low High Low High Low High - ---------------------------------------------------------------------------------------------------- First quarter 17 1/4 20 5/8 14 3/8 16 7/8 11 12 7/8 Second quarter 19 5/8 24 5/8 15 17 7/8 12 1/2 14 7/8 Third quarter 15 5/8 22 1/2 15 7/8 16 3/4 14 5/8 17 3/4 Fourth quarter 13 7/8 16 1/4 14 7/8 17 7/8 14 3/4 17 5/8 ------------------------------------------------------------
THE COMPANY ESTIMATES THAT THERE ARE APPROXIMATELY 5,500 SHAREHOLDERS, INCLUDING THOSE THROUGH NOMINEES, AS OF JUNE 1996. - 2 - TEN YEAR SUMMARY OF OPERATIONS AND FINANCIAL HIGHLIGHTS
Fiscal Year 1996 1995 1994 (52 weeks) (52 weeks) (52 weeks) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (Restated)(6) - ------------------------------------------------------------------------------------------------------------- Net sales $1,789,478 $1,569,019 $1,444,226 Gross profit 349,117 327,728 316,361 Warehouse, selling, general and administrative expenses 336,337 301,235 297,489 Interest expense, net of interest income 17,340 10,867 11,946 Income (loss) from continuing operations before provision (benefit) for income taxes and extraordinary item(4) (7) (27,819) 15,626 6,926 Provision (benefit) for income taxes Federal (9,180) 4,828 2,175 State (1,859) 1,422 630 Income (loss) from continuing operations before extraordinary item (16,780) 9,376 4,121 Income (loss) before extraordinary item (16,780) 32,872 7,362 Net income (loss)(5) (16,780) 32,872 5,918 Earnings (loss) per share (1) Income (loss) from continuing operations before extraordinary item(4) (7) $ (1.12) $ .64 $ .28 Income (loss) before extraordinary item (1.12) 2.24 .50 Net income (loss) (5) (1.12) 2.24 .40 Cash dividends 884 437 --- Cash dividends per share (2) $ .06 $ .03 $ --- Average shares outstanding (1) 14,941 14,730 14,601 ---------------------------------------------- Total assets $ 611,856 $ 524,068 $ 470,018 Working capital 90,307 161,616 154,641 Current ratio 1.3:1 2.0:1 2.2:1 Long-term debt (3) 135,081 146,536 151,227 Shareholders' equity 192,500 206,540 173,307 Shareholders' equity per share (1) $ 12.99 $ 14.15 $ 11.91 Common shares outstanding (1) 14,817 14,598 14,547 ----------------------------------------------
(1) ADJUSTED TO REFLECT 5-FOR-4 STOCK SPLITS DISTRIBUTED ON JANUARY 24, 1995 AND JANUARY 16, 1989. WHEN CONVERTIBLE SUBORDINATED DEBENTURES WERE OUTSTANDING, FULLY DILUTED EARNINGS PER SHARE WERE $.72 IN 1987. (2) THE CASH DIVIDENDS PER SHARE AMOUNTS HAVE BEEN ADJUSTED TO GIVE EFFECT TO THE 5-FOR-4 STOCK SPLITS DISCUSSED IN NOTE (1). THE CASH DIVIDENDS PER SHARE, BASED ON THE NUMBER OF SHARES OUTSTANDING AS OF THE DATES OF THE CASH DIVIDENDS, WERE $.64 FOR 1988 AND $.60 FOR 1987. (3) INCLUDED IN LONG-TERM DEBT ARE CONVERTIBLE SUBORDINATED DEBENTURES IN THE AMOUNT OF $60,000,000 IN 1987, AND OBLIGATIONS UNDER CAPITAL LEASES OF $944,000, $1,340,000, $1,744,000 AND $2,129,000 FOR 1990, 1989, 1988 AND 1987, RESPECTIVELY. (4) FOR 1993, THIS ITEM INCLUDES A ONE-TIME PRE-TAX RESTRUCTURING CHARGE OF $31 MILLION ($1.34 PER SHARE ON AN AFTER TAX BASIS). FOR 1996, THE REMAINING UNUTILIZED RESTRUCTURING RESERVE OF $6.4 MILLION WAS CREDITED INTO INCOME ($.26 PER SHARE ON AN AFTER TAX BASIS). (5) FOR 1994, THIS ITEM INCLUDES THE WRITE-OFF OF DEFERRED FINANCE COSTS OF $2,447,000 ($1,444,000, NET OF INCOME TAX BENEFIT OF $1,003,000 OR $.10 PER SHARE), FOR 1993, THE CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING FOR INCOME TAXES FOR $732,000 OR $.05 PER SHARE AND, FOR 1992, A PROVISION FOR LITIGATION SETTLEMENT OF $4,350,000 ($2,610,000, NET OF INCOME TAX BENEFIT OF $1,740,000 OR $.18 PER SHARE). (6) AMOUNTS RESTATED TO REFLECT SALE OF DISCONTINUED TONE BROTHERS, INC. SUBSIDIARY IN OCTOBER 1994. (7) FOR 1996, THIS ITEM INCLUDES THE EFFECT OF THE ADOPTION OF STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 121 OF $29.7 MILLION ($1.19 PER SHARE ON AN AFTER TAX BASIS). - 8 -
1993 1992 1991 (52 weeks) (53 weeks) (52 weeks) (Revised) (6) (Revised) (6) (Revised) (6) - ------------------------------------------------------------------------------------------------------------- Net sales 1,412,943 1,447,305 1,404,770 Gross profit 313,823 337,163 329,113 Warehouse, selling, general and administrative expenses 308,774 313,646 299,131 Interest expense, net of interest income 12,401 10,301 8,512 Income (loss) from continuing operations before provision (benefit) for income taxes and extraordinary item(4) (7) (38,352) 13,216 21,470 Provision (benefit) for income taxes Federal (12,465) 4,083 6,635 State (1,737) 1,203 1,953 Income (loss) from continuing operations before extraordinary item (24,150) 7,930 12,882 Income (loss) before extraordinary item (19,692) 10,006 13,823 Net income (loss)(5) (18,960) 10,006 13,823 Earnings (loss) per share (1) Income (loss) from continuing operations before $ (1.66) 0.55 0.89 extraordinary item(4) (7) (1.35) 0.69 0.95 Income (loss) before extraordinary item Net income (loss) (5) (1.30) 0.69 0.95 Cash dividends 3,771 6,951 6,968 Cash dividends per share (2) 0.26 0.48 0.48 Average shares outstanding (1) 14,508 14,521 14,515 ---------------------------------------------- Total assets 448,411 471,879 397,536 Working capital 143,372 156,822 160,059 Current ratio 2.2:1 2.2:1 2.5:1 Long-term debt (3) 144,669 139,333 91,028 Shareholders' equity 166,704 189,703 185,863 Shareholders' equity per share (1) $ 11.50 13.09 12.86 Common shares outstanding (1) 14,490 14,498 14,450 ----------------------------------------------
(1) ADJUSTED TO REFLECT 5-FOR-4 STOCK SPLITS DISTRIBUTED ON JANUARY 24, 1995 AND JANUARY 16, 1989. WHEN CONVERTIBLE SUBORDINATED DEBENTURES WERE OUTSTANDING, FULLY DILUTED EARNINGS PER SHARE WERE $.72 IN 1987. (2) THE CASH DIVIDENDS PER SHARE AMOUNTS HAVE BEEN ADJUSTED TO GIVE EFFECT TO THE 5-FOR-4 STOCK SPLITS DISCUSSED IN NOTE (1). THE CASH DIVIDENDS PER SHARE, BASED ON THE NUMBER OF SHARES OUTSTANDING AS OF THE DATES OF THE CASH DIVIDENDS, WERE $.64 FOR 1988 AND $.60 FOR 1987. (3) INCLUDED IN LONG-TERM DEBT ARE CONVERTIBLE SUBORDINATED DEBENTURES IN THE AMOUNT OF $60,000,000 IN 1987, AND OBLIGATIONS UNDER CAPITAL LEASES OF $944,000, $1,340,000, $1,744,000 AND $2,129,000 FOR 1990, 1989, 1988 AND 1987, RESPECTIVELY. (4) FOR 1993, THIS ITEM INCLUDES A ONE-TIME PRE-TAX RESTRUCTURING CHARGE OF $31 MILLION ($1.34 PER SHARE ON AN AFTER TAX BASIS). FOR 1996, THE REMAINING UNUTILIZED RESTRUCTURING RESERVE OF $6.4 MILLION WAS CREDITED INTO INCOME ($.26 PER SHARE ON AN AFTER TAX BASIS). (5) FOR 1994, THIS ITEM INCLUDES THE WRITE-OFF OF DEFERRED FINANCE COSTS OF $2,447,000 ($1,444,000, NET OF INCOME TAX BENEFIT OF $1,003,000 OR $.10 PER SHARE), FOR 1993, THE CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING FOR INCOME TAXES FOR $732,000 OR $.05 PER SHARE AND, FOR 1992, A PROVISION FOR LITIGATION SETTLEMENT OF $4,350,000 ($2,610,000, NET OF INCOME TAX BENEFIT OF $1,740,000 OR $.18 PER SHARE). (6) AMOUNTS RESTATED TO REFLECT SALE OF DISCONTINUED TONE BROTHERS, INC. SUBSIDIARY IN OCTOBER 1994. (7) FOR 1996, THIS ITEM INCLUDES THE EFFECT OF THE ADOPTION OF STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 121 OF $29.7 MILLION ($1.19 PER SHARE ON AN AFTER TAX BASIS).
1990 1989 1988 (52 weeks) (52 weeks) (52 weeks) (Revised) (6) (Revised) (6) Net sales 1,356,561 1,293,461 1,143,275 Gross profit 325,014 307,789 278,021 Warehouse, selling, general and administrative expenses 295,773 266,351 240,798 Interest expense, net of interest income 9,706 7,175 8,001 Income (loss) from continuing operations before provision (benefit) for income taxes and extraordinary item(4) (7) 19,535 34,263 29,222 Provision (benefit) for income taxes Federal 6,036 10,382 9,644 State 1,778 3,314 3,214 Income (loss) from continuing operations before extraordinary item 11,721 20,567 16,364 Income (loss) before extraordinary item 11,293 20,567 16,364 Net income (loss)(5) 11,293 20,567 16,364 Earnings (loss) per share (1) Income (loss) from continuing operations before extraordinary item(4) (7) $ 0.80 $ 1.40 $ 1.22 Income (loss) before extraordinary item 0.77 1.40 1.22 Net income (loss) (5) 0.77 1.40 1.22 Cash dividends 7,069 6,740 5,655 Cash dividends per share (2) 0.48 0.46 0.42 Average shares outstanding (1) 14,739 14,735 13,371 ---------------------------------------------- Total assets 399,343 392,386 325,762 Working capital 166,687 172,536 165,902 Current ratio 2.6:1 2.8:1 3.2:1 Long-term debt (3) 107,201 110,866 77,777 Shareholders' equity 180,422 178,605 163,863 Shareholders' equity per share (1) $ 12.39 $ 12.10 $ 11.14 Common shares outstanding (1) 14,561 14,760 14,713 ----------------------------------------------
(1) ADJUSTED TO REFLECT 5-FOR-4 STOCK SPLITS DISTRIBUTED ON JANUARY 24, 1995 AND JANUARY 16, 1989. WHEN CONVERTIBLE SUBORDINATED DEBENTURES WERE OUTSTANDING, FULLY DILUTED EARNINGS PER SHARE WERE $.72 IN 1987. (2) THE CASH DIVIDENDS PER SHARE AMOUNTS HAVE BEEN ADJUSTED TO GIVE EFFECT TO THE 5-FOR-4 STOCK SPLITS DISCUSSED IN NOTE (1). THE CASH DIVIDENDS PER SHARE, BASED ON THE NUMBER OF SHARES OUTSTANDING AS OF THE DATES OF THE CASH DIVIDENDS, WERE $.64 FOR 1988 AND $.60 FOR 1987. (3) INCLUDED IN LONG-TERM DEBT ARE CONVERTIBLE SUBORDINATED DEBENTURES IN THE AMOUNT OF $60,000,000 IN 1987, AND OBLIGATIONS UNDER CAPITAL LEASES OF $944,000, $1,340,000, $1,744,000 AND $2,129,000 FOR 1990, 1989, 1988 AND 1987, RESPECTIVELY. (4) FOR 1993, THIS ITEM INCLUDES A ONE-TIME PRE-TAX RESTRUCTURING CHARGE OF $31 MILLION ($1.34 PER SHARE ON AN AFTER TAX BASIS). FOR 1996, THE REMAINING UNUTILIZED RESTRUCTURING RESERVE OF $6.4 MILLION WAS CREDITED INTO INCOME ($.26 PER SHARE ON AN AFTER TAX BASIS). (5) FOR 1994, THIS ITEM INCLUDES THE WRITE-OFF OF DEFERRED FINANCE COSTS OF $2,447,000 ($1,444,000, NET OF INCOME TAX BENEFIT OF $1,003,000 OR $.10 PER SHARE), FOR 1993, THE CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING FOR INCOME TAXES FOR $732,000 OR $.05 PER SHARE AND, FOR 1992, A PROVISION FOR LITIGATION SETTLEMENT OF $4,350,000 ($2,610,000, NET OF INCOME TAX BENEFIT OF $1,740,000 OR $.18 PER SHARE). (6) AMOUNTS RESTATED TO REFLECT SALE OF DISCONTINUED TONE BROTHERS, INC. SUBSIDIARY IN OCTOBER 1994. (7) FOR 1996, THIS ITEM INCLUDES THE EFFECT OF THE ADOPTION OF STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 121 OF $29.7 MILLION ($1.19 PER SHARE ON AN AFTER TAX BASIS).
Rykoff-Sexton, Inc. 1987 (52 weeks) - ------------------------------------------------------------------------------- Net sales $1,081,648 Gross profit 261,009 Warehouse, selling, general and administrative expenses 232,582 Interest expense, net of interest income 11,920 Income (loss) from continuing operations before provision (benefit) for income taxes and extraordinary item(4) (7) 16,507 Provision (benefit) for income taxes Federal 6,759 State 1,747 Income (loss) from continuing operations before extraordinary item 8,001 Income (loss) before extraordinary item 8,001 Net income (loss)(5) 8,001 Earnings (loss) per share (1) Income (loss) from continuing operations before extraordinary item(4) (7) $ 0.73 Income (loss) before extraordinary item 0.73 Net income (loss) (5) 0.73 Cash dividends 4,166 Cash dividends per share (2) 0.38 Average shares outstanding (1) 10,929 --------------- Total assets 307,175 Working capital 154,475 Current ratio 3.3:1 Long-term debt (3) 138,339 Shareholders' equity 94,463 Shareholders' equity per share (1) $ 8.71 Common shares outstanding (1) 10,851 ---------------
(1) ADJUSTED TO REFLECT 5-FOR-4 STOCK SPLITS DISTRIBUTED ON JANUARY 24, 1995 AND JANUARY 16, 1989. WHEN CONVERTIBLE SUBORDINATED DEBENTURES WERE OUTSTANDING, FULLY DILUTED EARNINGS PER SHARE WERE $.72 IN 1987. (2) THE CASH DIVIDENDS PER SHARE AMOUNTS HAVE BEEN ADJUSTED TO GIVE EFFECT TO THE 5-FOR-4 STOCK SPLITS DISCUSSED IN NOTE (1). THE CASH DIVIDENDS PER SHARE, BASED ON THE NUMBER OF SHARES OUTSTANDING AS OF THE DATES OF THE CASH DIVIDENDS, WERE $.64 FOR 1988 AND $.60 FOR 1987. (3) INCLUDED IN LONG-TERM DEBT ARE CONVERTIBLE SUBORDINATED DEBENTURES IN THE AMOUNT OF $60,000,000 IN 1987, AND OBLIGATIONS UNDER CAPITAL LEASES OF $944,000, $1,340,000, $1,744,000 AND $2,129,000 FOR 1990, 1989, 1988 AND 1987, RESPECTIVELY. (4) FOR 1993, THIS ITEM INCLUDES A ONE-TIME PRE-TAX RESTRUCTURING CHARGE OF $31 MILLION ($1.34 PER SHARE ON AN AFTER TAX BASIS). FOR 1996, THE REMAINING UNUTILIZED RESTRUCTURING RESERVE OF $6.4 MILLION WAS CREDITED INTO INCOME ($.26 PER SHARE ON AN AFTER TAX BASIS). (5) FOR 1994, THIS ITEM INCLUDES THE WRITE-OFF OF DEFERRED FINANCE COSTS OF $2,447,000 ($1,444,000, NET OF INCOME TAX BENEFIT OF $1,003,000 OR $.10 PER SHARE), FOR 1993, THE CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING FOR INCOME TAXES FOR $732,000 OR $.05 PER SHARE AND, FOR 1992, A PROVISION FOR LITIGATION SETTLEMENT OF $4,350,000 ($2,610,000, NET OF INCOME TAX BENEFIT OF $1,740,000 OR $.18 PER SHARE). (6) AMOUNTS RESTATED TO REFLECT SALE OF DISCONTINUED TONE BROTHERS, INC. SUBSIDIARY IN OCTOBER 1994. (7) FOR 1996, THIS ITEM INCLUDES THE EFFECT OF THE ADOPTION OF STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 121 OF $29.7 MILLION ($1.19 PER SHARE ON AN AFTER TAX BASIS). - 9 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management's discussion and analysis of the Company's results of operations and financial condition includes the accompanying consolidated financial statements and notes thereto and the following additional information. RESULTS OF OPERATIONS - FISCAL 1996 VERSUS FISCAL 1995 The Company's key strategic objectives include becoming a top three broadline distributor in each of its markets, and making selected acquisitions that strengthen its market position and financial results. Consistent with this strategy, the Company acquired substantially all the assets of Continental Foods, Inc. ("Continental") during the fourth quarter in fiscal 1995 and substantially all of the assets of H & O Foods, Inc. ("H & O") in the third quarter of fiscal 1996. Operating results for Continental and H & O have been included since the dates of their acquisitions, which were February 21, 1995 and November 1, 1995, respectively. Shortly after the close of fiscal 1996, the Company completed its acquisition of US Foodservice Inc., creating the third largest broadline foodservice distribution company in the United States, with annualized sales of approximately $3.5 billion. This important acquisition further positions the Company to achieve its strategic objectives. Sales for fiscal 1996 advanced 14.1% to $1.8 billion from $1.6 billion last year. Excluding acquisitions, sales on a "same branch" basis for the fiscal year advanced 4%. Growth of same branch sales was hampered by the move to the new Los Angeles distribution center, a slowdown in sales growth at various locations throughout the country, and by severe winter weather conditions throughout the East and Midwest regions. Sales of Continental and H & O contributed significantly to the overall sales growth in fiscal 1996. The gross profit margin declined to 19.5% in fiscal 1996 from 20.9% in fiscal 1995. This decline reflects several factors, including the impact of the acquisitions of the broadline distributors, Continental and H & O, which have lower gross margins than the remainder of the Company, and the continuing transition by the Company from a niche distributor to a broadline distributor, providing customers with an expanded selection of product categories, including fresh meats, produce and seafood, that typically carry lower margins. Also, as part of this transition to broadline, a portion of the sales increase reflected increased sales to customers under special program pricing arrangements. Gross margins in the fourth quarter of fiscal 1996 were additionally affected by inventory realignments brought on in part by the continuing transition of the Company from a centralized to a decentralized structure, as well as in preparation for the merger. Warehouse, selling, general and administrative expenses as a percentage of sales for fiscal 1996 were 18.8% compared with 19.2% a year ago. While operating expenses as a percentage of sales in fiscal 1996 were lower compared to fiscal 1995, they did not decrease as much as was expected due primarily to the impact of the move to the Company's new Los Angeles distribution center. The start-up of this facility, which accounts for approximately 21% of the Company's total sales volume, took longer and was more costly than originally anticipated. Total operating expenses were also impacted by higher operating expenses in the fourth quarter resulting from bad debt and insurance related expenses, as well as the initial impact of the operational restructuring to facilitate the merger. These additional costs were partially offset by the reversal of restructuring reserves in the second quarter of fiscal 1996 (see discussion in next paragraph). Additionally, the two acquired locations have lower expenses as a percentage of sales than the overall Company. During fiscal 1993 the Company recorded a restructuring charge of $31 million to cover costs associated with a planned business reorganization. This reorganization was completed during the second quarter of the current year. With the completion of the reorganization program, the Company reversed the remaining unused portion of the original $31 million charge. This unused portion, totaling $6.4 million, partly offsets expenses associated with the relocation of the Los Angeles distribution center included in warehouse, selling, general and administrative expenses. - 10 - In the fourth quarter of fiscal 1996, the Company adopted the requirements of SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long- Lived Assets to Be Disposed Of," which is intended to establish more consistent accounting standards for measuring the recoverability of long-lived assets. To comply with this new accounting requirement, the Company identified all owned properties where there has been, or there is expected to be, a change in use in the recent past or foreseeable future which could affect the net recoverability of these assets. The net book values of these identified assets were compared to estimated current market values and future cash flows (for long-lived assets in use), to determine whether there may have been impairment in values. The adoption of SFAS 121 resulted in the Company recording a non-cash pretax charge of $29.7 million. Net interest expense for fiscal 1996 increased $6.5 million from fiscal 1995. The increase in interest expense was primarily due to higher borrowing levels, and the reduction in capitalized interest resulting from placing into service the newly constructed Los Angeles and Cincinnati facilities. Higher borrowing levels resulted from capital expenditures for the new distribution facilities, the acquisitions of Continental and H & O, and increased receivables and inventory levels due predominately to sales growth. RESULTS OF OPERATIONS - FISCAL 1995 VERSUS FISCAL 1994 In fiscal 1995, the Company's sales increased by 8.6 percent from $1.4 billion in the prior year. This sales growth was attributable to the Company's sales and marketing strategies combined with new product lines, and was achieved despite the impact of severe weather in January and February 1995 throughout the West Coast region. The gross profit margin for fiscal 1995 declined to 20.9% from 21.9% in fiscal 1994 primarily due to new product lines, changes in customer mix, the implementation of new sales promotion programs and cost increases in certain product categories. Warehouse, selling, general and administrative expenses as a percentage of sales for fiscal 1995 were 19.2% compared with 20.6% a year ago. This primarily resulted from increased vendor support programs and improved operating efficiencies. The decrease in operating expenses in fiscal 1995 also resulted from the effect of changes in actuarial assumptions affecting the determination of the Company's annual pension contribution and expense. These changes increased 1995 pre-tax earnings by approximately $0.8 million. Net interest expense for fiscal 1995 decreased by $1.1 million from the prior fiscal year, primarily due to increased capitalized interest and interest income. In fiscal 1995, the Company sold its Tone Brothers, Inc. subsidiary, which resulted in a recognized gain of $23.4 million. RESULTS OF OPERATIONS - OUTLOOK FOR FISCAL 1997 The recently completed merger with US Foodservice provides the Company with an added avenue to improve operating results. With new management in place, the consolidation of certain overlapping facilities and plans to achieve other significant operating efficiencies and marketing benefits are well underway. In connection with the merger and related integration process, the Company has set an objective of achieving cost savings in excess of $10 million in fiscal 1997. Management believes that the bulk of these cost savings should be derived primarily from enhanced purchasing leverage and more favorable sales and marketing allowances; opportunities to increase sales of self-manufactured items; and elimination of costs associated with redundant departments and functions. The operations of US Foodservice are performing well and are expected to contribute significantly to the Company's long term growth. For the three months ended March 30, 1996, US Foodservice had sales of $412.1 million and income from operations of $11.1 million, compared with sales of $391.3 million and income from operations of $9.5 million for the comparable prior year period. - 11 - In conjunction with the merger, the Company changed its fiscal year to the Saturday closest to June 30 from the Saturday closest to April 30, to conform its quarterly reporting schedule with other companies in the foodservice industry. As part of the consolidation process, the Company will record various one-time charges of approximately $60 to $70 million in the two-month period prior to the start of the Company's newly adopted fiscal year. These charges are primarily attributable to closures of duplicate facilities, product consolidation, realignment of inventory, severance and other related integration costs. LIQUIDITY AND CAPITAL RESOURCES The Company financed growth in fiscal 1996 primarily through borrowings on its bank credit line and, to a lesser extent, through new equity issues arising from employee stock options. Net cash used in operations totaled about $15.3 million. In fiscal 1995 and 1994, net cash provided by operations amounted to $12.0 million and $21.5 million, respectively. Sales increases resulting primarily from acquisitions contributed to increases in accounts receivable and inventories in fiscal 1996. As more fully discussed in Note 14 to the financial statements, the Company refinanced its debt in conjunction with its merger with US Foodservice. Under the new Credit Agreement, the Company has commitments from commercial banks and other lenders to provide a revolving line of credit up to $150 million. As of the closing date of the merger on May 17, 1996, the unused balance of this facility was approximately $100 million. The Company has principally used its bank credit line for capital expenditures, debt repayment, payment of dividends, as well as acquisitions. Going forward, the Company expects that its future capital expenditures, debt payments and cash dividends will be financed through a combination of cash flow generated from operating activities and use of its credit line. In fiscal 1996, the Company invested $43.9 million in capital expenditures, compared to $52.9 million and $ 18.3 million, respectively in fiscal 1995 and 1994. Construction of the new Los Angeles distribution center, for a total cost of approximately $45 million, began in fiscal 1995 and was completed in fiscal 1996. The Company has ongoing plans to incur capital expenditures, which may include construction of new and more efficient distribution centers and expansion of freezer and cooler facilities. As a result of the fiscal 1996 tax operating loss, the Company expects to receive tax refunds of approximately $5.6 million. The non-cash charge of $29.7 million resulting from the adoption of SFAS 121 does not have an effect on the Company's liquidity and capital resources. As the combination of the merged operations progresses, the Company expects to make one-time payments for severance and integration costs. These payments have been considered in the one-time charges to be recorded in the two-month transition period. Management believes that the Company will be able to generate cash flows from operations, and have sufficient capital resources for the foreseeable future to meet its operating needs, debt obligations and other cash outlays. The Company believes that the outcome of the arbitration proceedings described in Note 10 to the financial statements will not have a significant impact on its liquidity and capital resources. CURRENT AND PENDING ACCOUNTING CHANGE In October 1995, the FASB issued Statement No. 123, "Accounting for Stock-Based Compensation." The Company is required to adopt this Statement no later than June 30, 1997. This Statement encourages companies to recognize expense for stock options at an estimated fair value based on an option pricing model. If expense is not recognized for stock options, pro forma footnote disclosure is required of what net income and earnings per share would have been under the Statement's approach to valuing and expensing stock options. Certain other new disclosures will be required. The Company will implement the provisions of this Statement in fiscal 1997 and its impact has not yet been evaluated. - 12 - CONSOLIDATED STATEMENTS OF OPERATIONS Rykoff-Sexton, Inc.
Years Ended April 27, 1996 April 29, 1995 April 30, 1994 (52 weeks) (52 weeks) (52 weeks) (Dollars in thousands, except per share data) (Restated) - ------------------------------------------------------------------------------------------------------------ Net sales $1,789,478 $1,569,019 $1,444,226 Cost of sales 1,440,361 1,241,291 1,127,865 -------------------------------------------------- Gross profit 349,117 327,728 316,361 Warehouse, selling, general and administrative expenses 336,337 301,235 297,489 Reversal of restructuring reserves (6,441) --- --- Impairment of long-lived assets 29,700 --- --- -------------------------------------------------- Income (loss) from operations (10,479) 26,493 18,872 Interest income 584 267 40 Interest expense 17,924 11,134 11,986 -------------------------------------------------- Income (loss) from continuing operations before provision (benefit) for income taxes and extraordinary item (27,819) 15,626 6,926 Provision (benefit) for income taxes (11,039) 6,250 2,805 -------------------------------------------------- Income (loss) from continuing operations before extraordinary item (16,780) 9,376 4,121 Discontinued operations: Income from discontinued operations, net of income taxes of $95 and $2,207 --- 137 3,241 Gain on disposal of discontinued operations, net of income taxes of $15,687 --- 23,359 --- -------------------------------------------------- Income (loss) before extraordinary item (16,780) 32,872 7,362 Extraordinary item, net of income taxes --- --- (1,444) -------------------------------------------------- Net income (loss) $ (16,780) $ 32,872 $ 5,918 -------------------------------------------------- -------------------------------------------------- Earnings per share Income (loss) from continuing operations before extraordinary item $ (1.12) $ .64 $ .28 Income from discontinued operations --- .01 022 Gain on disposal of discontinued operations --- 1.59 --- -------------------------------------------------- Income (loss) before extraordinary item (1.12) 2.24 .50 Extraordinary item --- --- (.10) -------------------------------------------------- Net income (loss) $ (1.12) $ 2.24 $ .40 -------------------------------------------------- --------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS. - 13 -
CONSOLIDATED BALANCE SHEETS Rykoff-Sexton, Inc. (Dollars in thousands) April 27, 1996 April 29, 1995 - ------------------------------------------------------------------------------------------------------------ ASSETS CURRENT ASSETS Cash and cash equivalents $ 10,825 $ 4,959 Accounts receivable, less reserves of $5,401 in 1996 and $3,996 in 1995 182,312 151,379 Inventories 152,805 138,122 Prepaid expenses 27,104 24,979 ------------------------------ Total current assets 373,046 319,439 ------------------------------ PROPERTY, PLANT AND EQUIPMENT, AT COST Land, buildings and improvements 139,481 149,395 Transportation equipment 30,220 35,602 Office, warehouse and manufacturing equipment 142,347 127,353 ------------------------------ 312,048 312,350 Less: accumulated depreciation and amortization (134,130) (137,397) ------------------------------ 177,918 174,953 ------------------------------ OTHER ASSETS, NET Goodwill 41,188 21,920 Other 19,704 7,756 ------------------------------ 60,892 29,676 ------------------------------ Total $611,856 $524,068 ------------------------------ ------------------------------ LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Short-term debt $ 94,000 $ --- Accounts payable 120,828 97,623 Accrued payroll 10,919 11,357 Accrued insurance expenses & other 11,630 17,592 Accrued liabilities 25,654 31,062 Current portion of long-term debt 19,708 189 ------------------------------ Total current liabilities 282,739 157,823 ------------------------------ NON-CURRENT LIABILITIES Long-term debt, less current portion 135,081 146,536 Deferred income taxes --- 11,073 Other long-term liabilities 1,536 2,096 ------------------------------ SHAREHOLDERS' EQUITY Preferred stock, $.10 par value--- Authorized---10,000,000 shares; Outstanding---none --- --- Common stock, $.10 par value Authorized---40,000,000 shares; Outstanding---14,817,247 shares in 1996 and 14,597,599 shares in 1995 1,513 1,498 Additional paid-in capital 95,236 92,507 Retained earnings 99,497 117,161 ------------------------------ 196,246 211,166 Less: treasury stock, at cost 3,746 4,626 ------------------------------ 192,500 206,540 ------------------------------ Total $611,856 $524,068 ------------------------------ ------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE BALANCE SHEETS. - 14 -
CONSOLIDATED STATEMENTS OF CASH FLOWS Rykoff-Sexton, Inc. Years Ended April 27, 1996 April 29, 1995 April 30, 1994 (52 weeks) (52 weeks) (52 weeks) (Dollars in thousands) (Restated) - ------------------------------------------------------------------------------------------------------------ Cash flows from operating activities--- Net income (loss) $(16,780) $32,872 $ 5,918 Adjustments to reconcile net income to net cash provided by operating activities--- Extraordinary item --- --- 1,444 Impairment of long-lived assets 29,700 --- --- Net income from discontinued operations --- (137) (3,241) Depreciation and amortization 20,089 16,863 19,428 Gain on disposal of discontinued operations --- (23,359) --- Gain on sale of property, plant and equipment (1,304) (597) --- Increase (decrease) in deferred income taxes (4,477) (2,823) 552 Other (561) (475) --- Changes in assets and liabilities, net of working capital acquired --- (Increase) in accounts receivable (22,001) (4,717) (11,959) (Increase) in inventories (6,474) (13,245) (7,079) (Increase) decrease in prepaid expenses (13,289) (1,287) 406 Increase (decrease) in accounts payable and accrued liabilities (183) 8,921 15,996 ------------------------------------------------ Net cash (used in) provided by operating activities (15,280) 12,016 21,465 ------------------------------------------------ Cash flows used in investing activities --- Capital expenditures (43,927) (52,935) (18,283) Proceeds from sale and lease back transactions 2,247 2,955 6,786 Net cash used in discontinued operations --- (30,002) (29) Proceeds from sale of assets of discontinued operations --- 96,000 --- Cost of acquisitions (8,726) (24,836) --- Increase in other assets (6,255) (956) (200) ------------------------------------------------ Net cash used in investing activities (56,661) (9,774) (11,726) ------------------------------------------------ Cash flows from financing activities--- Increase (decrease) under credit line 80,000 (7,000) 6,000 Principal payments of long-term debt (3,433) (226) (282) Issuance of 8 7/8% Senior Subordinated Notes --- --- 128,943 Repayment of 8.60% Senior Notes --- --- (137,500) Payment of finance costs (1,500) (249) (6,000) Issuance of common stock 3,629 804 686 Dividends paid (884) (437) --- Purchase of treasury stock (5) (5) (1) ------------------------------------------------ Net cash provided by (used in) financing activities 77,807 (7,113) (8,154) ------------------------------------------------ Net increase (decrease) in cash and cash equivalents 5,866 (4,871) 1,585 Cash and cash equivalents at beginning of year 4,959 9,830 8,245 ------------------------------------------------ Cash and cash equivalents at end of year $10,825 $ 4,959 $ 9,830 ------------------------------------------------ ------------------------------------------------ Supplemental disclosures of cash flow information--- Cash paid during the year for--- Interest $18,305 $13,220 $ 8,663 Income taxes 1,583 26,830 1,852 ------------------------------------------------ ------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS. - 15 -
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Rykoff-Sexton, Inc. Common Stock ------------------------------- (DOLLARS IN THOUSANDS EXCEPT Number of Additional Treasury Retained PER SHARE DATA) Shares Amount Paid-in-capital Stock Earnings - ------------------------------------------------------------------------------------------------------------------------- Balance, May 1, 1993 11,591,545 $1,189 $91,327 $(4,620) $78,808 Net income --- --- --- --- 5,918 Stock options exercised 46,315 5 681 --- --- Treasury stock purchased (400) --- --- (1) --- ------------------------------------------------------------------------------------- Balance, April 30, 1994 11,637,460 1,194 92,008 (4,621) 84,726 Net income --- --- --- --- 32,872 Stock split 2,909,039 298 (305) --- --- Cash dividend ($.03 per share) --- --- --- --- (437) Stock options exercised 58,037 6 804 --- --- Treasury stock purchased (6,937) --- --- (5) --- ------------------------------------------------------------------------------------- Balance, April 29, 1995 14,597,599 1,498 92,507 (4,626) 117,161 Net loss --- --- --- --- (16,780) Contribution to employees' savings and profit sharing plan 19,802 --- 115 236 --- Cash dividend ($.06 per share) --- --- --- --- (884) Stock options exercised 205,569 15 2,649 649 --- Treasury stock purchased (5,723) --- (35) (5) --- ------------------------------------------------------------------------------------- Balance, April 27, 1996 14,817,247 $1,513 $95,236 $(3,746) $99,497 ------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS. - 16 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Rykoff-Sexton, Inc. April 27, 1996 NOTE ONE SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES LINE OF BUSINESS The Company manufactures and distributes food and related non- food products to various establishments in the foodservice industry. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of Rykoff-Sexton, Inc. and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. FISCAL YEAR The Company's fiscal year ends on the Saturday closest to April 30. All fiscal years presented contain 52 weeks. EARNINGS PER SHARE Earnings per share of common stock have been computed based on the weighted average number of shares of common stock outstanding and dilutive common share equivalents. The shares used in such calculations were 14,940,744 in 1996, 14,729,606 in 1995 and 14,601,185 in 1994. STOCK SPLIT In December 1994, the Board of Directors declared a 5-for-4 stock split payable January 24, 1995, to shareholders of record on December 21, 1994. Earnings per share, weighted average shares outstanding and stock option information included in the accompanying financial statements and related notes have been adjusted to reflect this stock split. INVENTORIES Inventories are priced at the lower of cost (first-in, first-out) or market, and include the cost of purchased merchandise and, for manufactured goods, the cost of material, labor and factory overhead. Inventories are summarized as follows: (Dollars in thousands) APRIL 27, 1996 APRIL 29, 1995 - ------------------------------------------------------------------------ Finished goods $145,899 $132,109 Raw materials 6,906 6,013 ------------------------------------- $152,805 $138,122 ------------------------------------- DEPRECIATION, AMORTIZATION, RETIREMENT AND MAINTENANCE POLICIES Depreciation is provided using the straight-line method, based upon the following estimated useful lives: Buildings and improvements 15 to 40 years Leasehold improvements Life of lease Transportation equipment 3 to 8 years Office, warehouse and manufacturing equipment 3 to 15 years Cost of normal maintenance and repairs are charged to expense when incurred. Replacements or betterments of properties are capitalized. When assets are retired or otherwise disposed of, their cost and the applicable accumulated depreciation and amortization are removed from the accounts, and the resulting gain or loss is reflected in income. GOODWILL Excess of cost over assets acquired (Goodwill) is amortized on a straight-line basis over 40 years. OTHER ASSETS Other assets are amortized on the straight-line or effective interest method over the following periods: Noncompetition and consulting agreements Term of agreement Leasehold interests Life of lease Deferred finance costs Life of debt Software development costs 5 years - 17 - Accumulated amortization of other assets was $8,961,000 and $7,042,000 as of April 27, 1996 and April 29, 1995, respectively. INCOME TAXES Under "Statement of Financial Accounting Standards No. 109 (SFAS 109), Accounting for Income Taxes", a deferred tax liability or asset is recognized for the estimated future tax effects attributable to temporary differences and carryforwards. Deferred income taxes result from temporary differences in the recognition of revenue and expense items for tax and financial statement purposes. The measurement of deferred income tax assets is adjusted by a valuation reserve, if necessary, so that the net tax benefits are recognized only to the extent that they will be realized. STATEMENT OF CASH FLOWS THe Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. CAPITALIZED INTEREST The Company capitalizes interest costs as part of the cost of major asset construction projects. Capitalized interest was $1,077,000 in 1996, $2,667,000 in 1995 and $66,000 in 1994. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. CURRENT AND PENDING ACCOUNTING CHANGE In October 1995, the FASB issued Statement No. 123, "Accounting for Stock-Based Compensation." The Company is required to adopt this Statement no later than June 30, 1997. This Statement encourages companies to recognize expense for stock options at an estimated fair value based on an option pricing model. If expense is not recognized for stock options, pro forma footnote disclosure is required of what net income and earnings per share would have been under the Statement's approach of valuing and expensing stock options. Certain other new disclosures will be required. The Company will implement the provisions of this Statement in fiscal 1997 and its impact has not yet been evaluated. RECLASSIFICATIONS The financial statements for prior years reflect certain reclassifications to conform with classifications adopted in the current year. NOTE TWO ACQUISITIONS On February 21, 1995, the Company acquired substantially all of the assets of Continental Foods, Inc., a privately owned Maryland corporation. Continental is a regional, full-line institutional foodservice distributor. For financial statement purposes the acquisition was accounted for as a purchase and, accordingly, Continental's results are included in the consolidated financial statements since the date of acquisition. The aggregate purchase price was approximately $27,000,000, which includes costs of acquisition. The aggregate purchase price, which was financed through available cash resources and issuance of a promissory note, has been allocated to the assets of the Company, based upon their respective fair market values. The excess of the purchase price over assets acquired (Goodwill) approximated $21,200,000 and is being amortized over forty years. On November 1, 1995, the Company acquired substantially all of the assets of H&O Foods, Inc., a privately owned Nevada corporation. H&O is a regional, institutional distributor. For financial statement purposes the acquisition was accounted for as a purchase and, accordingly, H&O's results are included in the consolidated financial statements since the date of acquisition. The aggregate purchase price was approximately $29,600,000, which includes the costs of acquisition. The aggregate consideration, which included the issuance of unsecured promissory notes totaling $24,831,000 and the Company's assumption of certain H&O liabilities, has been allocated to the assets of the Company, based upon their respective fair market values. The excess of the purchase price over assets acquired (Goodwill) approximated $18,400,000 and is being amortized over 40 years. - 18 - In connection with the acquisitions, liabilities were assumed as follows: (Dollars in thousands) Continental H&O Total - ---------------------------------------------------------------------------- Fair value of assets acquired $39,647 $39,948 $79,595 Unsecured note(s) issued at acquisition date (2,425) (24,831) (27,256) Cash paid (24,836) (4,737) (29,573) ---------------------------------------- Liabilities assumed $12,386 $10,380 $22,766 ---------------------------------------- The following unaudited pro forma consolidated results of operations have been prepared as if the acquisitions of Continental and H&O had occurred as of the beginning of fiscal 1996 and 1995: Pro Forma Years Ended April 27, 1996 April 29, 1995 (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA) - ----------------------------------------------------------------------------- Net sales $1,856,353 $1,772,425 Net income (loss) from continuing operations (16,604) 10,247 Net income (loss) per share from continuing operations $ (1.11) $ .69 ------------------------------------------ The pro forma consolidated results do not purport to be indicative of results that would have occurred had the acquisitions been in effect for the period presented, nor do they purport to be indicative of the results that will be obtained in the future. NOTE THREE SFAS 121 ACCOUNTING CHANGE In the fourth quarter of fiscal 1996, the Company adopted Statement of Financial Accounting Standards No. 121 - "Accounting for Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of." This statement requires that long-lived assets and certain intangibles to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. When such events or changes in circumstances indicate an asset may not be recoverable, a company must estimate the future cash flows expected to result from the use of the asset and its eventual disposition. If the sum of such expected future cash flows (undiscounted and without interest charges) is less than the carrying amount of the asset, an impairment loss is required to be recognized in an amount by which the asset's net book value exceeds its fair market value. For purposes of assessing impairment under this standard, assets are required to be grouped at the lowest level for which there are separately identifiable cash flows. To comply with this new standard, the Company identified all long-lived assets where there has been, or there is expected to be, a change in use in the recent past or foreseeable future which could affect the recoverability of such long-lived assets. The Company recently relocated or closed certain of its distribution centers. If future undiscounted cash flows estimated to be derived from such assets indicated an impairment existed, the Company recognized an impairment loss for the amount by which the estimated net book values of the assets exceeded their estimated fair values. The fair values estimated by the Company were determined by using the present value of expected future cash flows and/or market evaluations by qualified real estate brokers in the related cities. The adoption of this accounting standard resulted in the Company recording a pre-tax charge of $29.7 million and is principally reflected as a reduction in the net carrying value of land, buildings and improvements. NOTE FOUR RESTRUCTURING COSTS During 1993, the Company recorded a restructuring charge of $31 million or, on an after tax basis, $19.5 million or $1.34 per share. This charge was established to provide for a business reorganization which included facility closures, relocation and consolidation of distribution centers into more efficient facilities including severance costs, elimination of redundancies between the Company's two principal operating divisions, workforce reductions and write down of facilities to their estimated net realizable value. - 19 - In fiscal 1995 and fiscal 1996, the Company aggressively continued its plan to close and consolidate its underperforming distribution centers and sublease space in those centers with excess capacity. Additionally, severance and relocation costs were paid in connection with the consolidation, relocation and downsizing of distribution centers. These payments totaled $3.3 million in 1996. In October 1995, the Company concluded its restructuring plan and credited the remaining unutilized restructuring reserve of $6.4 million into income. NOTE FIVE LONG-TERM DEBT AND BORROWING ARRANGEMENTS The long-term debt of the Company as of April 27, 1996 and April 29, 1995 is summarized as follows: (Dollars in thousands) 1996 1995 - ----------------------------------------------------------------------------- 8 7/8% Senior Subordinated Notes due in 2003, net of unamortized discount of $843 in 1996 and $954 in 1995 $129,157 $129,046 Bank credit agreement 94,000 14,000 Notes payable 24,572 2,425 Mortgage notes 1,060 1,103 Other --- 151 ----------------------------- Total debt 248,789 146,725 Less-current portion 113,708 189 ----------------------------- Long-term debt, less current portion $135,081 $146,536 ----------------------------- ----------------------------- In November 1993, the Company issued $130 million principal amount of 8-7/8% Senior Subordinated Notes (the "8-7/8% Notes") due November 1, 2003 with interest payable semiannually commencing May 1, 1994. The 8-7/8% Notes were sold at a discount for an aggregate price of $128.9 million. Provisions of the 8-7/8% Notes include, without limitation, restrictions of liens, indebtedness, asset sales, and dividends and other restricted payments. The 8-7/8% Notes are redeemable at the option of the Company, in whole or in part, at 104.44% of their principal amount beginning November 1998, and thereafter at prices declining annually to 100% on and after November 2001. In addition, upon the occurrence of an event that constitutes a Change of Control (as defined in the indenture for such notes), each holder of the 8-7/8% Notes may require the Company to repurchase all or a portion of such holder's 8-7/8% Notes at a purchase price equal to 101% of the principal amount thereof, together with accrued and unpaid interest, if any, to the date of the repurchase. The 8-7/8% Notes are not subject to any sinking fund requirements. In conjunction with the merger with US Foodservice Inc. on May 17, 1996 (see Note 14), the Company entered into a new credit facility (New Credit Facility). The New Credit Facility provided $485 million of financing comprised of three term loan facilities, Tranche A, Tranche B and Tranche C ($335 million in aggregate) and a $150 million revolving credit facility. The term loans have the following principal amounts: $150 million for the Tranche A Term Loan, $125 million for the Tranche B Term Loan and $60 million for the Tranche C Term Loan. The amount available under the Revolver includes a letter of credit sublimit of $45 million. Under the New Credit Facility, substantially all of the Company's assets have been pledged and the notes bear interest based upon the bank's reference rate or the London Interbank Offered Rate, at the option of the Company. Furthermore, the Company has agreed to enter into interest rate protection agreements for a period of three years to insure that the weighted average interest rate on at least 50 percent of the new bank indebtedness, as defined, will not exceed 9 1/2%. The Tranche A Term Loan, Tranche B Term Loan, Tranche C Term Loan and the Revolver will mature on October 31, 2001, October 31, 2002, April 30, 2003 and October 31, 2001, respectively. Part of the proceeds were used to pay off the balance outstanding on the Company's bank credit agreement and other outstanding debt. Covenants and other restrictions contained in the New Credit Facility require the Company to meet certain financial tests and restrict its ability to borrow additional funds, make capital expenditures, dispose of assets and pay cash dividends. As part of the aggregate purchase price of the acquisitions more fully described in Note 2, the Company issued unsecured promissory notes totaling $27,256,000. The promissory notes accrue interest at variable rates, require quarterly interest payments and mature on various dates through November 1997. Of these notes, $18,850,000 were paid off in the refinancing discussed above. - 20 - Scheduled aggregate annual payments of long-term debt as of May 17, 1996 are $8,627,000 for 1997, $21,452,000 for 1998, $26,552,000 for 1999, $36,557,000 for 2000, $46,563,000 for 2001 and $352,457,000 thereafter. Based on the borrowing rates currently available to the Company for debt with similar terms and maturities, the fair value of debt is $243,783,000 as of April 27, 1996. NOTE SIX LEASE ARRANGEMENTS The Company leases a substantial portion of its office and warehouse facilities under long-term operating leases. Rental expense under operating leases for 1996, 1995 and 1994 was $28,821,000, $23,714,000 and $19,578,000 respectively. The approximate minimum future rentals are payable as follows: Fiscal Year (Dollars in thousands) - ------------------------------------------------------------------------------ 1997 $22,873 1998 19,503 1999 15,920 2000 13,594 2001 10,381 Thereafter 32,902 --------- Total minimum lease payments $115,173 --------- NOTE SEVEN INCOME TAXES In fiscal 1996, the Company had a net tax operating loss of approximately $16 million. For Federal income tax purposes, the loss may be carried back three years and will be fully utilized. For state income tax purposes, the loss must be carried forward and a valuation allowance of $569,000 has been recognized to offset the deferred tax asset. The SFAS 121 write-down recorded in fiscal 1996 (see Note 3) will become deductible when the related long-lived assets are sold. A valuation allowance of $891,000 has been recognized to offset the deferred tax asset. Significant components of the Company's deferred tax assets and liabilities are as follows: (Dollars in thousands) April 27, 1996 April 29, 1995 - ----------------------------------------------------------------------------- Deferred tax assets: SFAS 121 write-down $12,177 $ --- Restructuring charges --- 7,434 Accrued expenses on discontinued operations 1,340 3,366 Self-insurance reserves 2,533 3,373 Allowance for bad debts 1,253 1,532 Accrued vacation pay 1,150 1,248 Food bank contributions 624 (196) Other 3,657 3,276 Valuation allowance (1,460) (544) ----------------------------------- Total deferred tax assets 21,274 19,489 ----------------------------------- Deferred tax liabilities: Accelerated depreciation (6,785) (11,875) Other (2,398) --- ----------------------------------- Total deferred tax liabilities (9,183) (11,875) ----------------------------------- Net deferred tax asset $12,091 $7,614 ----------------------------------- ----------------------------------- - 21 - In fiscal 1996, the net deferred tax asset is comprised of $7,210,000 in prepaids and $4,881,000 in other assets. In fiscal 1995, the net deferred tax asset is comprised of $18,687,000 in prepaids and $11,073,000 in deferred income taxes. The provision (benefit) for income taxes before extraordinary item consists of the following: 1994 (Dollars in thousands) 1996 1995 (Restated) - ------------------------------------------------------------------------------- Current tax expense (benefit)--- Federal $(5,816) $3,851 $1,595 State 381 1,395 638 ------------------------------------ (5,435) 5,246 2,233 Deferred tax expense (benefit)--- SFAS 121 write-down, net (12,177) --- --- Restructuring charges, net 4,027 1,545 3,002 Accelerated depreciation (346) (259) (79) Fringe benefits 437 (334) (1,107) Other, net 2,455 52 (1,244) ------------------------------------ $(11,039) $6,250 $2,805 ------------------------------------ The difference between the Federal income tax rate of 35% and the actual effective tax rate of 39.7% for fiscal 1996, 40.0% for fiscal 1995 and 40.5% for fiscal year 1994 is due to state taxes, net of the Federal tax benefit, and the effect of the valuation allowance discussed above. NOTE EIGHT STOCK OPTION PLANS The 1988 Stock Option and Compensation Plan (the "1988 Plan") authorizes the issuance of up to 1,406,250 shares of common stock. The 1988 Plan authorizes the issuance of various stock incentives to officers and employees, including options, stock appreciation rights, stock awards, restricted stock, performance shares and cash awards. Stock options allow for the purchase of common stock at prices determined by the Stock Option Committee except for incentive stock options, which must be purchased at prices not less than the fair market value at the date of grant. These options expire 10 years from the date of grant and are exercisable as defined by the Stock Option Committee. Stock appreciation rights (SARs), which may be issued in conjunction with the grant of options, permit the optionee to receive shares of stock, cash or a combination of shares and cash measured by the difference between the option price and the market value of the stock on the date of exercise. Upon exercise of an SAR, the option is canceled. As of April 27, 1996, there were 12,501 SARs outstanding. Restricted stock grants for 49,600 shares were issued in 1996 under the 1995 Key Employees Stock Option and Compensation Plan (The "1995 Plan"), and grants for 6,250 shares and 53,094 shares in 1995 and 1994, respectively, were issued under the 1988 Plan. These shares vest either ratably over a four-year period, or in full four years from their respective grant dates. Deferred compensation equivalent to the difference between the market value at date of grant and the option price was credited to additional paid-in-capital and is being amortized to compensation expense over the vesting period. The amounts amortized in fiscal 1996, 1995 and 1994 were $436,000, $251,000 and $286,000, respectively. In addition to the 1988 Plan, the Company's 1980 Stock Option Plan (the "1980 Plan") authorized awards of stock options and stock appreciation rights; options expire 10 years from the date of grant and no further grants may be made under the 1980 Plan. The Company also maintains the 1993 Director Stock Option Plan (the "1993 Director Plan") which authorizes the issuance of up to 125,000 shares of common stock. Under the 1993 Director Plan, each director who is not a full-time officer or employee of the Company will receive annually a non- qualified option to purchase 1,250 shares of common stock. Options under the 1993 Director Plan expire 10 years from the date of grant. - 22 - During fiscal 1996, 1995 and 1994, the price range of options exercised was $.80 to $19.76 per share and the price of restricted shares purchased was $1.00 per share during 1996 and $.80 per share in 1995 and 1994. As of April 27, 1996, the exercise price of options and grants outstanding under all the Company's stock option plans ranged from $.80 to $24.00. Changes in the number of shares available for use in stock options under all such stock option plans are summarized as follows: 1996 1995 1994 - ------------------------------------------------------------------------------ Outstanding at beginning of year 1,137,497 1,281,237 1,112,259 Granted 142,250 333,125 345,560 Exercised (133,000) (50,537) (57,894) Canceled and SARs exercised (33,572) (426,328) (118,688) ------------------------------------------ Outstanding at year end 1,113,175 1,137,497 1,281,237 ------------------------------------------ Exercisable at end of year 704,553 649,759 509,626 ------------------------------------------ Available for grant at end of year 214,514 347,806 319,504 ------------------------------------------ NOTE NINE PENSION AND PROFIT SHARING PLANS The Company maintains non-contributory pension plans for its salaried, commissioned and certain of its hourly employees. Under the plans, the Company is required to make annual contributions that are determined by the plans' consulting actuary, using participant data that is supplied by the Company. It is the Company's policy to fund pension costs currently. Pension benefits are based on length of service and either a percentage of final average annual compensation or a dollar amount for each year of service. Net pension expense for fiscal 1996, 1995 and 1994 are included in the following components: 1996 1995 1994 (Dollars in thousands) (Restated) - -------------------------------------------------------------------------------- Service cost---benefits earned during the period $3,489 $3,339 $3,965 Interest cost on projected benefit obligation 4,133 4,037 4,040 Actual return on plan assets (5,055) (4,886) (4,626) Net amortization and deferral (149) (71) 206 ------------------------------- Net pension expense $2,418 $2,419 $3,585 ------------------------------- The following table reconciles the pension plans' funded status to accrued expense as of April 27, 1996 and April 29, 1995. 1996 1995 (Dollars in thousands) (Restated) - -------------------------------------------------------------------------------- Market value of plan assets in equities and bonds $61,886 $53,752 -------------------- Actuarial present value of accumulated benefits: Vested 49,307 39,771 Non-vested 3,235 1,837 Additional benefits based on estimated future salary levels 9,809 6,815 -------------------- Projected benefit obligation 62,351 48,423 -------------------- Plan assets more (less) than projected benefit obligation (465) 5,329 Unrecognized net obligation to be amortized over 10 years 3,497 1,571 Unrecognized net (gain) loss (9,659) (11,137) -------------------- Accrued pension liability $(6,627) $(4,237) -------------------- The Company changed certain assumptions affecting the determination of its annual pension contribution and expense. The weighted average discount rate increased in 1996 from 8.25% to 8.5% and the rate of increase in future compensation levels decreased from 5% to 4% in 1996. The expected long-term rate of return on assets was 9.5 % in 1995 and 1996. Changes in the actuarial assumptions increased pre-tax earnings by $1,121,000 and $767,000 in 1996 and 1995, respectively. - 23 - For collectively bargained, multi-employer pension plans, contributions are made in accordance with negotiated labor contracts and generally are based on the number of hours worked. With the passage of the Multi-Employer Pension Plan Amendments Act of 1980 (the "Act"), the Company may, under certain circumstances, become subject to liabilities in excess of contributions made under collective bargaining agreements. Generally, these liabilities are contingent upon the termination, withdrawal, or partial withdrawal from the plans. The Company has not taken any action to terminate, withdraw or partially withdraw from these plans which would result in any material liability. The amount of accumulated benefits and net assets of such plans is not currently available to the Company. Total contributions charged to expense under all pension plans were $6,130,000, $5,786,000 and $5,325,000 for the fiscal years 1996, 1995 and 1994, respectively. The Company maintains an employees' savings and profit sharing plan under Section 401(k) of the Internal Revenue Code for employees meeting certain age and service requirements (the "Plan"). In fiscal 1994, the Plan was amended to provide for a discretionary matching contribution by the Company. The Company's contribution is determined based on established performance objectives and is made in common stock in an amount equal to twenty-five percent (25%) of the first four percent (4%) of the participant's deferral contributions made during the Plan year. In fiscal 1996, the Company contributed 19,802 shares out of its treasury to the Plan to cover the match amount for plan year 1995 of approximately $351,000. The Company has Supplemental Executive Retirement Plans for certain executives, which provide enhanced retirement and disability benefits for these executives. Benefits generally are based upon final average pay and years of service and are reduced by benefits the executive is entitled to receive under the Company's qualified pension plan, certain retirement-type non-qualified deferred compensation and social security, and are subject to adjustment for early retirement and certain other events. The expense and liabilities associated with these plans are reflected in the net pension expense and accrued pension liability reconciliation shown in the above tables. NOTE TEN COMMITMENTS AND CONTINGENCIES The Company has change in control agreements with various officers which provide, among other things, that if, within two years after a change in control (as defined), the Company terminates the employment of the officer, other than for death, disability, or cause, or with respect to the Chief Executive Officer, for any or no reason (other than death) or if the officer elects to terminate his employment for good reason (as defined), or with respect to the Chief Executive Officer, for any or no reason, the officer will receive 2.99 times the sum of the officer's base salary plus the amount that would otherwise be earned under any executive compensation plan. The Company has severance agreements with various officers which provide, among other things, that if, within the three-year term of the agreements (with automatic one-year renewal unless either party gives advance notice to the contrary), the Company involuntarily terminates the officer, other than for death, disability or cause (as defined), or if the officer elects to terminate his employment after a reduction in base pay (other than a general reduction) or notice of the non-renewal of the agreement, the officer will receive certain termination benefits. Such termination benefits include salary and welfare benefit continuation for two years, bonus (based on actual performance results during the applicable performance period and calculated as though the officer had remained employed throughout such applicable performance period, but prorated to reflect the period of the officer's actual service), full vesting in any stock options and in each individual's Supplemental Executive Retirement Plan and crediting of benefits under the Company's Deferred Compensation Plan at a preferred rate. Any termination payments made to an officer under a severance agreement will be offset by any payments made under such officer's employment agreement or change in control agreement. In October 1994, the Company sold all of the stock of Tone Brothers, Inc. ("Tone") to Burns Philp, Inc. ("Burns Philp"). The sale agreement provided for arbitration in the case of a dispute and on April 16, 1995, Burns Philp filed a notice of arbitration in which it claimed contract and fraud damages in excess of $57 million in connection with the purchase of Tone. In management's opinion, based on consultation with legal counsel, the sale agreement should limit any claims for breach of representations under the sale agreement to a maximum of $25 million. - 24 - After extensive investigation and discovery, the matter was presented to the arbitration tribunal in February 1996 and final argument was presented in April 1996. The matter has been fully briefed and is awaiting decision by the tribunal. While the Company believes it presented very significant factual and legal defenses to the claims, the outcome of this matter is currently uncertain; however, in management's opinion, based on consultation with legal counsel, the resolution of this matter will not have a material effect on the Company's consolidated financial position or its results of operations. The Company or its subsidiary are defendants in a number of cases currently in litigation or have potential claims encountered in the normal course of business which are being vigorously defended. In the opinion of management, the resolution of these matters will not have a material effect on the Company's financial position or results of operations. The Company utilizes standby letters of credit to satisfy worker's compensation self insurance security deposit requirements. These letters of credit are irrevocable and have one-year renewable terms. Outstanding standby letters of credit as of April 27, 1996 and April 29, 1995 were $17.1 million and $18.0 million, respectively. Additionally, the Company had outstanding irrevocable commercial letters of credit of $4.0 million and $3.8 million as of April 27, 1996 and April 29, 1995, respectively. These letters of credit, which are payable at sight, collateralize the Company's obligations to third parties for the purchase of inventory. The contract amounts of these letters of credit approximate their fair value. NOTE 11 PREFERRED STOCK PURCHASE RIGHTS Each outstanding share of common stock is accompanied by 0.64 preferred share purchase rights to purchase Series A Junior Participating Preferred Stock. As of April 27, 1996, there were 9,483,038 rights outstanding. Each right entitles the holder to purchase a unit consisting of one two-hundreth of a share of Series A Junior Participating Preferred Stock, $.10 par value, at $100 per unit subject to adjustment. The rights are not exercisable or transferable apart from the common stock until 10 days after a person or group, with certain exceptions, has acquired 15 percent or more, or makes a tender offer for 30 percent or more, of the Company's common stock. Each right will entitle the holder, under certain circumstances (a merger, acquisition of 15 percent or more of common stock of the Company by an acquiring entity, self-dealing transactions by an acquiring entity, or sale of 50 percent or more of the Company's assets or earning power), to acquire at half the value, either common stock of the Company, a combination of certain assets, or securities of the Company, or common stock of the acquiring entity. Any such event would also result in any rights owned beneficially by the acquiring entitiy or its affiliates to become null and void. The rights expire May 15, 2006 and are redeemable prior to the time an acquiring entity acquires 15 percent or more of the Company's common stock at one cent per right. At April 27, 1996, 125,000 shares of Series A Junior Participating Preferred Stock were authorized but unissued and were reserved for issuance upon exercise of the rights. - 25 - NOTE TWELVE QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) The unaudited results of operations by quarter for each of the two years in the period ended April 27, 1996 are summarized below:
(Dollars in thousands, except per share data) 1996 First Second Third Fourth - ---------------------------------------------------------------------------------------------------------------- Net sales $421,771 $440,545 $452,379 $474,783 Cost of sales 335,579 352,451 365,697 386,634 Net income (loss) 2,645 2,877 544 (22,846) -------------------------------------------------------------- Earnings (loss) per share $ .18 $ .19 $ .04 $ (1.53) -------------------------------------------------------------- 1995 First Second Third Fourth (Restated) - ---------------------------------------------------------------------------------------------------------------- Net sales $380,378 $392,748 $379,601 $416,292 Cost of sales 298,912 308,702 300,685 332,992 Income from continuing operations 2,123 3,987 896 2,370 Income (loss) from discontinued operations (173) 310 --- --- Gain on disposal of discontinued operations --- 23,359 --- --- Net income 1,950 27,656 896 2,370 -------------------------------------------------------------- Earnings per share from continuing operations $ .15 $ .27 $ .06 $ .16 Earnings (loss) per share from discontinued operations (.01) .02 --- --- Earnings per share from gain on disposal of discontinued operations --- 1.59 --- --- -------------------------------------------------------------- Earnings per share $ .14 $ 1.88 $ .06 $ .16 --------------------------------------------------------------
NOTE THIRTEEN RESTATEMENT As disclosed in Note 10, the Company disposed of its Tone subsidiary in October 1994. The accompanying prior year financial statements have been restated to exclude Tone's net assets and operating results from the Company's continuing operations. NOTE FOURTEEN SUBSEQUENT EVENT On May 17, 1996, the Company consummated its previously announced agreement to merge with US Foodservice Inc. ("US Foodservice"), a privately held broadline foodservice distribution company. As part of the merger agreement, US Foodservice stockholders received 1.457 shares of Rykoff-Sexton common stock for each outstanding share of Class A and Class B common stock of US Foodservice, resulting in the issuance of 12.9 million Rykoff-Sexton common shares. Options and warrants to acquire approximately one million shares of US Foodservice common stock were converted into options and warrants to acquire Rykoff-Sexton common stock on the same basis. In addition, all outstanding shares of US Foodservice $15 cumulative redeemable exchangeable preferred stock were purchased by Rykoff-Sexton for $26.6 million. - 26 - In connection with the merger, Rykoff-Sexton entered into a new bank credit facility with a syndicate of financial institutions providing for loans and other credit facilities equal to $485 million. Rykoff-Sexton also entered into an accounts receivable securitization facility with two banks totaling an additional $110 million. Under this program, the Company will sell certain of its trade accounts receivable on an ongoing basis. The Company also assumed an existing $90 million accounts receivable securitization facility already in place at US Foodservice. The initial net proceeds of the new credit facility and the receivables securitization were used to refinance existing bank debt and certain other indebtedness of Rykoff-Sexton, refinance substantially all of US Foodservice's outstanding debt, repurchase US Foodservice preferred stock, provide initial financing for Rykoff-Sexton's ongoing working capital needs and pay related fees and expenses. In connection with the US Foodservice merger consummated on May 17, 1996, the Company announced that it will change its fiscal year to the Saturday closest to June 30 from the Saturday closest to April 30. The Company will record one-time charges ranging from $60 to $70 million in the two month period prior to the start of the Company's newly adopted fiscal year. These charges are primarily attributable to closures of duplicate facilities, consolidation and realignment of inventory, severance and other related exit costs. - 27 - REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Shareholders of Rykoff-Sexton, Inc.: We have audited the accompanying consolidated balance sheets of Rykoff-Sexton, Inc. (a Delaware corporation) and its subsidiary as of April 27, 1996 and April 29, 1995, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three fiscal years in the period ending April 27, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Rykoff-Sexton, Inc. and its subsidiary as of April 27, 1996 and April 29, 1995, and the results of their operations and their cash flows for each of the three fiscal years in the period ended April 27, 1996, in conformity with generally accepted accounting principles. As discussed in Note 3 to the Consolidated Financial Statements, the Company adopted Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" in fiscal 1996. ARTHUR ANDERSEN LLP Chicago, Illinois June 7, 1996 - 28 - EX-21 24 LIST OF SUBSIDIARIES EXHIBIT 21 SUBSIDIARIES OF RYKOFF-SEXTON, INC. 1. John Sexton & Co., a Delaware corporation. John Sexton & Co. either has done business or presently does business under the following names: "White River Canning Co.," Burbank-Douglas," Continental Foods, Inc.," "Continental Foods" and "Continental Foods, Inc., a division of Rykoff-Sexton, Inc." 2. Rykoff-Sexton Funding Corporation, a Nevada corporation. 3. US Foodservice Inc., a Delaware corporation. 4. WS Holdings Corporation, a Delaware corporation. 5. White Swan, Inc., a Delaware corporation. White Swan, Inc. either has done business or presently does business under the following names: "Standard Food Service," "Watson Food Service," "Wm. E. Davis & Sons," "Restaurant Food Supply," "RFS," "US Foodservice - Austin Division," "US Foodservice - Davis Division," "US Foodservice - Dallas Division," "US Foodservice - Standard Division," "US Foodservice - Lubbock Division," "US Foodservice - Ohio and "US Foodservice - Watson Division." 6. Mom's Produce & Food, Inc., a Texas corporation. Mom's Produce & Food, Inc. either has done business or presently does business under the name "Mom's." 7. BRB Holdings, Inc., a Delaware corporation. 8. Biggers Brothers, Inc., a Delaware corporation. Biggers Brothers, Inc. either has done business or presently does business under the following names: "BBI" and "US Foodservice - Biggers Division." 9. King's Foodservice, Inc., a Kentucky corporation. King's Foodservice, Inc. either has done business or presently does business under the name "US Foodservice - King's Division." 10. US Foodservice of Atlanta, Inc., a Delaware corporation. US Foodservice of Atlanta, Inc. either has done business or presently does business under the name "Goode." 11. Roanoke Restaurant Service, Inc., a Virginia corporation. Roanoke Restaurant Service, Inc. either has done business or presently does business under the following names: "RRS" and "US Foodservice - Roanoke Division." 12. F. H. Bevevino & Company, Inc., a Pennsylvania corporation. F. H. Beveino & Company, Inc. either has done business or presently does business under the following names: "Bevaco Food Service," "MPS," "Midwest Packer Sales," "US Foodservice - Bevaco Division," "Bevaco," "EMBCO" and "E.M. Bartikowsky." 13. US Foodservice of Florida, Inc., a Delaware corporation. US Foodservice of Florida, Inc. either has done business or presently does business under the following names: "CP," "Daniel's," "US Foodservice - Riviera Beach Division," "US Foodservice - Orlando Division," "US Foodservice - Ft. Myers Division" and "US Foodservice - Daniel's Division." 14. USFAR Inc., a Nevada corporation. 15. USFTM , Inc., a Delaware corporation. EX-23 25 CONSENT OF AUDITORS Exhibit 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report dated June 7, 1996, incorporated by reference in this Form 10-K, into the Company's previously filed S-8 Registration Statement File No. 33-04049. /s/ Arthur Andersen LLP ------------------------- ARTHUR ANDERSEN LLP Chicago, Illinois July 26, 1996 EX-24.1 26 POWER OF ATTORNEY/JAMES I. MASLON POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of Rykoff-Sexton, Inc., a Delaware corporation (the "Company"), hereby constitutes and appoints MARK VAN STEKELENBURG, RICHARD J. MARTIN, ROBERT J. HARTER, JR., AND JAMES C. WONG (with full power to each of them to act alone) his true and lawful attorney-in-fact and agent, for him and on his behalf and in his name, place and stead, in any and all capacities, to sign, execute and file the Annual Report of the Company on Form 10-K for the year ended April 27, 1996 to be filed pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934, including any amendment or with respect thereto with any regulatory authority, granting unto said attorneys, and each of them, full power and authority to do and perform each and everything requisite and necessary to be done in and about the premises in order to execute the same as fully to all intents and purposes as he, himself, might or could do if personally present, hereby ratifying and confirming all that said attorneys-in-fact and agents, or each of them, may lawfully do or could cause to be done by virtue hereof. IN WITNESS HEREOF, the undersigned has caused this Power of Attorney to be executed July ____, 1996. /s/James I. Maslon ------------------------------------- James I. Maslon EX-24.2 27 POWER OF ATTORNEY/JAMES P. MISCOLL POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of Rykoff-Sexton, Inc., a Delaware corporation (the "Company"), hereby constitutes and appoints MARK VAN STEKELENBURG, RICHARD J. MARTIN, ROBERT J. HARTER, JR., AND JAMES C. WONG (with full power to each of them to act alone) his true and lawful attorney-in-fact and agent, for him and on his behalf and in his name, place and stead, in any and all capacities, to sign, execute and file the Annual Report of the Company on Form 10-K for the year ended April 27, 1996 to be filed pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934, including any amendment or with respect thereto with any regulatory authority, granting unto said attorneys, and each of them, full power and authority to do and perform each and everything requisite and necessary to be done in and about the premises in order to execute the same as fully to all intents and purposes as he, himself, might or could do if personally present, hereby ratifying and confirming all that said attorneys-in-fact and agents, or each of them, may lawfully do or could cause to be done by virtue hereof. IN WITNESS HEREOF, the undersigned has caused this Power of Attorney to be executed July ____, 1996. /s/James P. Miscoll ------------------------------------- James P. Miscoll EX-24.3 28 POWER OF ATTORNEY/NEIL I. SELL POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of Rykoff-Sexton, Inc., a Delaware corporation (the "Company"), hereby constitutes and appoints MARK VAN STEKELENBURG, RICHARD J. MARTIN, ROBERT J. HARTER, JR., AND JAMES C. WONG (with full power to each of them to act alone) his true and lawful attorney-in-fact and agent, for him and on his behalf and in his name, place and stead, in any and all capacities, to sign, execute and file the Annual Report of the Company on Form 10-K for the year ended April 27, 1996 to be filed pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934, including any amendment or with respect thereto with any regulatory authority, granting unto said attorneys, and each of them, full power and authority to do and perform each and everything requisite and necessary to be done in and about the premises in order to execute the same as fully to all intents and purposes as he, himself, might or could do if personally present, hereby ratifying and confirming all that said attorneys-in-fact and agents, or each of them, may lawfully do or could cause to be done by virtue hereof. IN WITNESS HEREOF, the undersigned has caused this Power of Attorney to be executed July ____, 1996. /s/Neil I. Sell ------------------------------------- Neil I. Sell EX-24.4 29 POWER OF ATTORNEY/BERNARD SWEET POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of Rykoff-Sexton, Inc., a Delaware corporation (the "Company"), hereby constitutes and appoints MARK VAN STEKELENBURG, RICHARD J. MARTIN, ROBERT J. HARTER, JR., AND JAMES C. WONG (with full power to each of them to act alone) his true and lawful attorney-in-fact and agent, for him and on his behalf and in his name, place and stead, in any and all capacities, to sign, execute and file the Annual Report of the Company on Form 10-K for the year ended April 27, 1996 to be filed pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934, including any amendment or with respect thereto with any regulatory authority, granting unto said attorneys, and each of them, full power and authority to do and perform each and everything requisite and necessary to be done in and about the premises in order to execute the same as fully to all intents and purposes as he, himself, might or could do if personally present, hereby ratifying and confirming all that said attorneys-in-fact and agents, or each of them, may lawfully do or could cause to be done by virtue hereof. IN WITNESS HEREOF, the undersigned has caused this Power of Attorney to be executed July ____, 1996. /s/Bernard Sweet ------------------------------------- Bernard Sweet EX-24.5 30 POWER OF ATTORNEY/JAN W. JEURGENS POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of Rykoff-Sexton, Inc., a Delaware corporation (the "Company"), hereby constitutes and appoints MARK VAN STEKELENBURG, RICHARD J. MARTIN, ROBERT J. HARTER, JR., AND JAMES C. WONG (with full power to each of them to act alone) his true and lawful attorney-in-fact and agent, for him and on his behalf and in his name, place and stead, in any and all capacities, to sign, execute and file the Annual Report of the Company on Form 10-K for the year ended April 27, 1996 to be filed pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934, including any amendment or with respect thereto with any regulatory authority, granting unto said attorneys, and each of them, full power and authority to do and perform each and everything requisite and necessary to be done in and about the premises in order to execute the same as fully to all intents and purposes as he, himself, might or could do if personally present, hereby ratifying and confirming all that said attorneys-in-fact and agents, or each of them, may lawfully do or could cause to be done by virtue hereof. IN WITNESS HEREOF, the undersigned has caused this Power of Attorney to be executed July _____, 1996. /s/Jan W. Jeurgens ------------------------------------- Jan W. Jeurgens EX-24.6 31 POWER OF ATTORNEY/R. BURT GOOKIN POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of Rykoff-Sexton, Inc., a Delaware corporation (the "Company"), hereby constitutes and appoints MARK VAN STEKELENBURG, RICHARD J. MARTIN, ROBERT J. HARTER, JR., AND JAMES C. WONG (with full power to each of them to act alone) his true and lawful attorney-in-fact and agent, for him and on his behalf and in his name, place and stead, in any and all capacities, to sign, execute and file the Annual Report of the Company on Form 10-K for the year ended April 27, 1996 to be filed pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934, including any amendment or with respect thereto with any regulatory authority, granting unto said attorneys, and each of them, full power and authority to do and perform each and everything requisite and necessary to be done in and about the premises in order to execute the same as fully to all intents and purposes as he, himself, might or could do if personally present, hereby ratifying and confirming all that said attorneys-in-fact and agents, or each of them, may lawfully do or could cause to be done by virtue hereof. IN WITNESS HEREOF, the undersigned has caused this Power of Attorney to be executed July ____, 1996. /s/R. Burt Gookin ------------------------------------- R. Burt Gookin EX-24.7 32 POWER OF ATTORNEY/FRANK H. BEVEVINO POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of Rykoff-Sexton, Inc., a Delaware corporation (the "Company"), hereby constitutes and appoints MARK VAN STEKELENBURG, RICHARD J. MARTIN, ROBERT J. HARTER, JR., AND JAMES C. WONG (with full power to each of them to act alone) his true and lawful attorney-in-fact and agent, for him and on his behalf and in his name, place and stead, in any and all capacities, to sign, execute and file the Annual Report of the Company on Form 10-K for the year ended April 27, 1996 to be filed pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934, including any amendment or with respect thereto with any regulatory authority, granting unto said attorneys, and each of them, full power and authority to do and perform each and everything requisite and necessary to be done in and about the premises in order to execute the same as fully to all intents and purposes as he, himself, might or could do if personally present, hereby ratifying and confirming all that said attorneys-in-fact and agents, or each of them, may lawfully do or could cause to be done by virtue hereof. IN WITNESS HEREOF, the undersigned has caused this Power of Attorney to be executed July ____, 1996. /s/Frank H. Bevevino ------------------------------------- Frank H. Bevevino EX-24.8 33 POWER OF ATTORNEY/MATTHIAS B. BOWMAN POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of Rykoff-Sexton, Inc., a Delaware corporation (the "Company"), hereby constitutes and appoints MARK VAN STEKELENBURG, RICHARD J. MARTIN, ROBERT J. HARTER, JR., AND JAMES C. WONG (with full power to each of them to act alone) his true and lawful attorney-in-fact and agent, for him and on his behalf and in his name, place and stead, in any and all capacities, to sign, execute and file the Annual Report of the Company on Form 10-K for the year ended April 27, 1996 to be filed pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934, including any amendment or with respect thereto with any regulatory authority, granting unto said attorneys, and each of them, full power and authority to do and perform each and everything requisite and necessary to be done in and about the premises in order to execute the same as fully to all intents and purposes as he, himself, might or could do if personally present, hereby ratifying and confirming all that said attorneys-in-fact and agents, or each of them, may lawfully do or could cause to be done by virtue hereof. IN WITNESS HEREOF, the undersigned has caused this Power of Attorney to be executed July ____, 1996. /s/Matthias B. Bowman ------------------------------------- Matthias B. Bowman EX-24.9 34 POWER OF ATTORNEY/ALBERT J. FITZGIBBONS POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of Rykoff-Sexton, Inc., a Delaware corporation (the "Company"), hereby constitutes and appoints MARK VAN STEKELENBURG, RICHARD J. MARTIN, ROBERT J. HARTER, JR., AND JAMES C. WONG (with full power to each of them to act alone) his true and lawful attorney-in-fact and agent, for him and on his behalf and in his name, place and stead, in any and all capacities, to sign, execute and file the Annual Report of the Company on Form 10-K for the year ended April 27, 1996 to be filed pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934, including any amendment or with respect thereto with any regulatory authority, granting unto said attorneys, and each of them, full power and authority to do and perform each and everything requisite and necessary to be done in and about the premises in order to execute the same as fully to all intents and purposes as he, himself, might or could do if personally present, hereby ratifying and confirming all that said attorneys-in-fact and agents, or each of them, may lawfully do or could cause to be done by virtue hereof. IN WITNESS HEREOF, the undersigned has caused this Power of Attorney to be executed July ____, 1996. /s/Albert J. Fitzgibbons ------------------------------------- Albert J. Fitzgibbons EX-24.10 35 POWER OF ATTORNEY/SUNIL C. KHANNA POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of Rykoff-Sexton, Inc., a Delaware corporation (the "Company"), hereby constitutes and appoints MARK VAN STEKELENBURG, RICHARD J. MARTIN, ROBERT J. HARTER, JR., AND JAMES C. WONG (with full power to each of them to act alone) his true and lawful attorney-in-fact and agent, for him and on his behalf and in his name, place and stead, in any and all capacities, to sign, execute and file the Annual Report of the Company on Form 10-K for the year ended April 27, 1996 to be filed pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934, including any amendment or with respect thereto with any regulatory authority, granting unto said attorneys, and each of them, full power and authority to do and perform each and everything requisite and necessary to be done in and about the premises in order to execute the same as fully to all intents and purposes as he, himself, might or could do if personally present, hereby ratifying and confirming all that said attorneys-in-fact and agents, or each of them, may lawfully do or could cause to be done by virtue hereof. IN WITNESS HEREOF, the undersigned has caused this Power of Attorney to be executed July ____, 1996. /s/Sunil C. Khanna ------------------------------------- Sunil C. Khanna EX-24.11 36 POWER OF ATTORNEY/ROBERT W. WILLIAMSON POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of Rykoff-Sexton, Inc., a Delaware corporation (the "Company"), hereby constitutes and appoints MARK VAN STEKELENBURG, RICHARD J. MARTIN, ROBERT J. HARTER, JR., AND JAMES C. WONG (with full power to each of them to act alone) his true and lawful attorney-in-fact and agent, for him and on his behalf and in his name, place and stead, in any and all capacities, to sign, execute and file the Annual Report of the Company on Form 10-K for the year ended April 27, 1996 to be filed pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934, including any amendment or with respect thereto with any regulatory authority, granting unto said attorneys, and each of them, full power and authority to do and perform each and everything requisite and necessary to be done in and about the premises in order to execute the same as fully to all intents and purposes as he, himself, might or could do if personally present, hereby ratifying and confirming all that said attorneys-in-fact and agents, or each of them, may lawfully do or could cause to be done by virtue hereof. IN WITNESS HEREOF, the undersigned has caused this Power of Attorney to be executed July ____, 1996. /s/Robert W. Williamson ------------------------------------- Robert W. Williamson EX-27 37 FINANCIAL DATA SCHEDULE
5 1,000 YEAR APR-27-1996 APR-30-1995 APR-27-1996 10825 0 187713 5401 152805 373046 312048 134130 611856 282739 135081 0 0 1513 190987 611856 1789478 1789478 1440361 336337 0 0 17924 (27819) (11039) (16780) 0 0 0 (16780) (1.12) (1.12)
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